TECHNICAL
ANALYSIS
WORKSHOP
JAN 24
STOCK MARKET
BASICS
Basics of Stock Market
Let’s start our journey from the scratch by learning some basic things and
terminologies used in the stock market !!
What is Financial Market ?
A financial market refers to a marketplace where buyers and
sellers engage in the buying and selling of financial assets.
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Different types of Financial Market ?
There are many types of financial markets such as forex market, commodity
market, bond market, real estate market, stock market, derivative market,
cryptocurrency market and many more.
What is stock market ?
It is a financial marketplace where buying, selling and issuing
of shares of publicly held companies take place. It is also
known as the equity market or share market
Need for stock market ?
Stock market is a high risk, high reward instrument. With proper knowledge and
practice one can earn a good amount of return on their investments as compared
to other instruments like Saving accounts or FD etc.
Will you put all the money in the stock market ?
No, not at all before entering in the world of stock market please ensure that you
have sufficient amount of emergency funds and have a good source of income.
Why should I invest in stock market ?
To earn more returns on your capital
Basics of Stock Market
What is a share ?
When a private company needs more money for business expansion they launch
their shares in the stock market so that individuals like us can buy their shares in
exchange of money i.e. by buying the shares, the company get money and we get a
part of company’s ownership as the shares represents the part of ownership of
that business or company.
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When someone buys a share, they became the part of the
company therefore all the profit-loss, capital appreciation
or depreciation, good and bad about the company directly
affects the share price.
Shares are bought and sold on stock exchanges and their prices are influenced by
various factors, including the company's performance and market conditions.
So, you might have thinking what is a stock exchange ?
A stock exchange is a place where buyers and sellers can buy and sell stocks and
other financial securities. It provides a platform for companies to raise capital by
issuing stocks and for investors to buy and sell financial instruments.
2 major stock exchange in India:
1. NSE
2. BSE
Basics of Stock Market
Is there any other stock exchange other than NSE, BSE ?
Yes there are like:
Calcutta Stock Exchange (CSE)
India International Exchange (India INX)
And many more...
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What are bulls and bear in market ?
Bulls = The market participants who wants stock prices
to go upside
Bears = The market participants who wants stock prices
to go downside
What is a market index ?
A market index measures the performance of a group of stocks that represents a
specific sector, industry or the overall market.
It is calculated by tracking the changes in the prices of selected stocks over time
providing investors with a benchmark to assess market trends.
For example Nifty50 index represents overall
performance of top 50 companies in India
BankNifty index represents overall performance of bank companies in India
Other indices are Nifty100, Nifty500, NSE Midcap and many others
Basics of Stock Market
What is a market participants and different types of it?
A market participant is an individual or entity which engaged in buying or selling
of financial instruments.
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Different types of market participants include:
1.Individual Investors:
Private individuals who buy and sell financial instruments such as stocks or bonds
for personal investment purposes.
2.Institutional Investors:
Large organizations such as mutual funds, pension funds and insurance companies
that manage and invest huge amounts of capital on behalf of investors.
3.Brokers:
They helps in executing trades. They acts as intermediaries which
connects buyers with sellers and vice-versa in the financial markets.
4.Retail Traders:
Individual investors which engage in trading financial securities through online
platforms. They make smaller trades as compared to institutional investors.
Other participants include: Hedge Funds High-Frequency Traders (HFTs)
Investment Banks Central Banks
Basics of Stock Market
What is a stock broker ?
A stock broker is a firm that execute trades on stock exchanges and gives facility
of buying and selling of stocks and other securities on behalf of investors.
They also provide investment advice and charge commissions for their services.
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Stock brokers play a key role by connecting investors with the financial markets.
Here are some common types of stock brokers:
Full-Service Brokers:
They offer a large range of financial services which
includes investment advice, research and a wide range
of investment products.
They have dedicated financial advisors who assist
clients in making investment decisions.
Generally, full-service brokers charge higher fees or
commissions compared to discount brokers.
Discount Brokers:
They offer basic trading services without personalized
advice or research.
They provides online platforms for self investors and
fewer advisory services.
Discount brokers typically charge lower commissions
compared to full-service brokers.
Basics of Stock Market
Direct Market Access (DMA) Brokers:
They provide direct access to financial markets which allows traders to execute
high-frequency trades.
They are often used by professional or institutional traders.
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There costs can vary and DMA brokers may charge fees based on trade volume.
Institutional Brokers:
They provide services to large institutional investors such as mutual funds, hedge
funds and pension funds.
They provides the features of block trading, algorithmic trading and access to
global markets.
Fees may vary based on the services provided and the scale of institutional
trading.
Some other brokers include: Traditional Brokers, Robo Advisors etc.
When choosing a stock broker, investors should consider factors such as their
investment goals, level of experience, preferred service and cost.
It's essential to ensure that the broker is reputable and regulated by financial
authorities.
How can we start investing in stock market ?
Opening a Demat account is a prerequisite for trading or investing in the stock
market.
Basics of Stock Market
What is a Demat Account ?
A Demat (Dematerialized) account is an electronic account that holds and tracks
an individual's or an investor's securities in digital form.
It serves as an electronic alternative to holding physical share certificates.
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Points to remember for starting your trading or investing journey:
Educate Yourself:
Learn the basics of investing, understand different types of
investment and familiarize yourself with financial terms.
Set Financial Goals:
Determine your investment objectives, whether it's saving for a specific goal (e.g.
buying a home, funding for education) or building wealth for the long term.
Define your risk tolerance, which impacts the types of investments you should
consider.
Create a Budget:
Make a budget that allows you to save and invest a portion of your income
regularly. Consistency is key to long term investing success.
Build an Emergency Fund:
Before investing, ensure that you have an emergency fund.
This fund should cover at least six months' worth of your
living expenses.
It provides financial security in case of unexpected events.
Basics of Stock Market
Diversify Your Portfolio:
Spread your investments across different asset classes like stocks, gold, bonds,
etc. to reduce risk.
Diversification can help you protect your portfolio from the impact of poor
performance in any single investment.
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Start Small and Gradually Increase:
Begin with a small amount that you can afford to invest. As you gain confidence
and experience, you can gradually increase your investment contributions.
Control Your Emotions:
Trading or Investing can be emotionally challenging. Stay disciplined and avoid
making decisions based on fear or greed.
Emotional control and Patience is the key to long term success.
Monitor and Rebalance:
Regularly review your investment portfolio and make adjustments as needed, it
ensures that your asset allocation aligns with your financial goals and risk
tolerance.
Stay Informed:
Keep yourself updated on market trends and economic news and that may affect
your investments. Continuous learning is crucial in the dynamic world of investing.
Remember that investing always carries some level of risk and there are no
guaranteed returns.
If you're uncertain, consider consulting with a financial advisor to get
personalized advice based on your individual circumstances and goals
Basics Terminologies of Stock Market
Bull Market:
A market characterized by rising stock prices.
Bull markets are associated with economic growth
and positive market conditions.
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Bear Market:
A market characterized by falling stock prices.
Bear markets are often associated with economic
downturns and negative market conditions
Index:
A measurement of the performance of a group of stocks representing a particular
sector, industry or the overall market. Examples: Nifty50, Banknifty etc.
Broker:
An individual or firm that facilitates the buying and selling of financial
instruments on behalf of investors.
Brokers may be full-service, discount, online brokers and others
Portfolio:
A collection of investments owned by an individual or institution.
A portfolio may include stocks, bonds, mutual funds and other financial
instruments.
Basics Terminologies of Stock Market
Blue Chip Stocks:
Shares of large, well established and financially stable
companies with a history of reliable performance.
Blue chip stocks are considered relatively safe investments.
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IPO (Initial Public Offering):
It is a process by which the company does the first sale of their company's stock
to the public.
Companies go public to raise capital by selling shares to investors.
Primary Market:
The primary market is where new securities are issued and initially sold to the
public.
It is the market where companies raise capital by issuing new stocks or bonds to
investors for the first time.
Secondary Market:
The secondary market, also known as the aftermarket, is where existing securities
that were previously issued in the primary market are bought and sold among
investors.
It is the market where most everyday trading occurs.
Market Order:
An order to buy or sell a security at the current market price.
Market orders are executed as quickly as possible.
Basics Terminologies of Stock Market
Limit Order:
An order to buy or sell a security at a specific price. Limit orders are executed only
if the market price reaches the specified level.
Diversification:
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Spreading investments across different asset classes or securities
to reduce risk. Diversification is a risk management strategy.
Liquidity:
The ease with which an asset can be bought or sold in the market without
affecting its price. High liquidity indicates ease of trading.
ETF (Exchange-Traded Fund):
An investment fund that trades on stock exchanges, representing a basket of
assets such as stocks, bonds, or commodities.
Ask Price:
The price at which sellers are willing to sell a security. Also known as the "offer"
or "asked" price.
Bid Price:
The price at which buyers are willing to purchase a security. The
bid price represents the maximum price a buyer is willing to pay.
Basics Terminologies of Stock Market
Spread:
The difference between the bid and ask prices is called as spread. A narrower
spread often indicates higher liquidity.
Short Selling:
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Selling a security that the seller does not own with the intention of buying it back
later at a lower price. It usually indicates selling first at high price and buying
later at low price generating profits.
Day Trading:
A trading strategy where buying and selling of financial securities
happens within the same trading day with no positions held overnight.
Swing Trading:
A trading strategy where buying and selling of financial securities happens for
short to medium term price movements by holding the positions for several days to
weeks.
Volatility:
It determines the fluctuation in a securities price over time.
High volatility indicates larger price fluctuations and vice versa.
Leverage:
The use of borrowed capital to increase the size of a trading position. While it can
amplify gains, it also magnifies potential losses.
Basics Terminologies of Stock Market
Candlestick Chart:
A type of financial chart used to represent the price movement of an asset.
Each "candlestick" shows the opening, closing,
high and low prices for a specific period.
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Resistance:
A price level at which a security tends to stop rising due to a more number of
sellers.
Support:
A price level at which a security tends to stop falling due to a more number of
buyers.
Rally:
A rapid increase in the price of a security or the overall market, it shows the
strong upward momentum.
Correction:
A reverse movement in the price of a security or the overall market after a
significant upward or downward trend.
Understanding these basic stock market terms can help you navigate the financial
markets and make informed investment decisions.
KEEP
LEARNING!
Parth Verma
No Risk NoStory