GETTING STARTED IN STOCK MARKET

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noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 11:22:00 +0000

This Website will help new investors find a place of refuge and knowledge where they can acquire the skills necessary for survival and profit in the brutal world of investing.

Read on all the articles to have clear knowledge. Please feel free to ask questions or post comments.

What is a stock?

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:50:00 +0000

Companies throughout the world issue new stock shares every day. But what is stock, and why does a company issue it?

Let's imagine that you decide to start up your own business. You will need to invest in equipment, raw materials and property. All the money that you invest to start your business is called capital.

What if you don't have enough cash to buy all the needed assets?

You can raise money in two ways - by selling shares of equity or by incurring debt. Equity is simply ownership of a company. Typically, ownership units in a company are referred to as stock. Stocks, shares and equities all mean the same.

If you own a companys stock it means that you are one of the many owners of the company. This means technically you own a tiny piece of everything the company owns. As a owner you can also share the companys earnings as well(Dividends).

Why Invest in stocks?

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:47:00 +0000

I don’t want to waste your time with things that you already know. The main reason to invest in stock market is that you can grow along the country’s growth because the stock market plays a major role in a country’s economy. Due to the rise in inflation, a normal savings will probably hold you back from growing along country.

You probably already know that, over the long term, the stock market generates returns higher than any deposit account. It’s true that people earn lot of money whether the market is up or down.

People might have told you lot of myths and romours about the risks investing in stock market. Anyway all the myths and rumours could be true! But remember that there is always risk in anything we do. But with education and intelligence we can minimize the risk. Understanding the risks is the first step to minimize them. One can also profit in stock market with almost zero risk, if he is emotionally well balanced.

How the stock market works?

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:45:00 +0000

When you wanted to invest in stocks you also need to have a basic understanding of how the stock market works. Stock market consists of two different functions- the primary market and the secondary market.

The stock market provides a mechanism where people who want to own shares of stock can buy them from people who already own those shares. This mechanism not

only matches buyer and seller, but it also provides a way for the buyer and seller to agree mutually on the price. Note that when you buy shares in a publicly traded company such as Reliance, you are not buying the shares from the company itself. You are buying the shares from another investor who already owned the shares. This is what economists call a secondary market for shares. In the secondary market, investors buy and sell those shares to other investors depending on the current market conditions.

Nowadays trading is done electronically with a click of a mouse. If you wanted to buy a share you just have to approach a broker in which you have a demat account and let him know. That’s all. Within minutes the share will be in your hands (I mean in your account). When the deal is done a message is sent back to your broker and you have now become the owner of stock in a company. At a later date, you may decide to sell the stock (especially if the price per share has gone up). Then you will make a profit.

This is different from the primary market in which the company sold the shares directly to investors in the first place. The initial public offering (IPO) occurs when the company first sells shares to the public and arranges for the secondary trading of its shares. The primary market is the IPO and the secondary market is the trading done through brokers in the open market.

IPO

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:44:00 +0000

Why would the company owners share the profits with thousands of people when they could keep profits to themselves? The reason is that at some point every company needs to "raise money". For eg: If suppose I own a land and I don’t have enough money to build house. I am planning to build the house and sell it with profit. To do this, I can either borrow it from somebody or raise it by selling part of my company, which is known as issuing stock. This is IPO.

Therefore in the primary market, companies raise funds for their operating expenses by selling shares in the company to investors. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO).

Generally issuing stocks is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. A company can also raise more capital than it could borrow. On the other hand stock holders earn a lot if a company is successful, but they also stand to lose their entire investment if the company isn't successful. All that the shareholders get in return for their money is the hope that their shares will someday be worth more than what they paid for them.

Dividend

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:43:00 +0000

Apart from having the value of the stocks increased, a stock holder will also get payments from the companies which they hold shares. These payments are given in order to share a portion of the profits in the company. The total profit earned by the company will be divided among the stockholders. The amount is decided by a board of directors and is usually paid quarterly.

Few companies pay dividends four times a year and some once a year. The more time there is between dividend payments will indicate the financial and profit problems of a company. After all, if the company is well-known for high dividend payments then more people will want to get in on the action. This can actually lead to increases in stock price and additional profit for the company which can result in even more dividend payments.

Supply and Demand

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:41:00 +0000

How can you predict a market?

Your primary concern should be state of supply and demand. Because at the most fundamental level, supply and demand in the market determines stock price. One way or another, the answers lie in some form of analysis of trading volume, price action and moving average.

Understanding supply and demand is easy. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. On the other hand, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. The result of supply causes bear market and the result of demand causes bull market.

To predict the supply and demand you have to figure out the likes and dislikes of people, you have to figure out what news is positive for a company and what news is negative and how any news about a company will be interpreted by the people. Of course, it's not just the feeling people have about a stock. So, what are all the factors that affect the stocks price? The answer is that nobody really knows for sure.

The stock market will become far more interesting if you have the idea of what is going on and what is causing it to go up or down. A whole new and exciting world can open up for you.

What is NSE and BSE?

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:40:00 +0000

National stock exchange (NSE) was established in India in 1994 to provide a more transparent alternative to the stock exchange, mumbai. The NSE is a national exchange integrating the country's stock markets through nationwide automated on-line screen operations and electronic clearing and settlement.

Bombay Stock Exchange is the oldest stock exchange in Asia. It is located at Dalal Street, Mumbai, India. It was established in 1875. There are around 3,500 Indian companies listed with the stock exchange, and has a significant trading volume. As of 2005, it is among the 5 biggest stock exchanges in the world in terms of transactions volume. Along with the NSE, the companies listed on the BSE have a combined market capitalization of US$ 125.5 billion.

There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE. Most of the stock trading in the country is done though the BSE & the NSE.

What is Sensex and Nifty?

The Sensex is an "index". What is an index? An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or down. The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE.

If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down.

Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE. Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up or down. This is called the “BSE Mid-cap Index”. There are also many other types of indexes.

Fundamental Analysis vs Technical Analysis

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:36:00 +0000

There are two major types of analysis to follow before buying a stock. They are:

1) Fundamental Analysis

Fundamental analysis focuses on the study of economic, social and political issues that affect the stock market. Fundamentalists look for price-to-earning ratios known as P/E. This figure can be
derived by dividing the stock’s price by its per-share earnings. They are more concerned with a stock’s annual performance than in overall market behavior. Daily fluctuations do not matter, as they concentrate on the steady, continuous growth patterns.

One of the reasons that many people do not like using fundamental analysis is because of the time, effort, and energy that’s required when researching and studying the market. However, even fundamental knowledge is significantly beneficial to day traders. For instance, having good fundamental knowledge of the market enhances your ability to interpret news announcements and key headlines to determine a price swing.

2) Technical Analysis

On a deeper level, technical analysis concentrates on evaluating time, price and market sentiment.
Technical analysts rely heavily upon the usage of charts. They use them to determine how many shares have been sold in a day, a week, or a month’s time.

Technical Analysis is also an excellent way to obtain up-to-second status accounts on equities and other market indicators. Day traders pay special attention to current market indices, which may give an indication in which direction the breezing market may blow next.

The quick delivery of news is essential as traders try to correctly interpret whether or not to quickly buy or sell, or to simply reverse positions. Of course, “timely” is the key here. Traders try to beat all the other traders before the information spreads to the market majority of investors. The idea is to take advantage of these opportunities in a profitable way.

Combined

The best sure method of increasing your profitability in this uncertain and unpredictable market, is to find a comfortable method of market analysis that combines both the fundamental and the technical aspects of trading.

The combination of both technical and fundamental studies could be hard but its worth. It not only increases your knowledge but can boost your confidence. Fundamental factors often supplement technical pricing, which in turn greatly increases your chances of being right.

This is one aspect of stock trading that sets the professionals apart from the amateurs. They have their momentum down. They pay attention, think quickly, interpret even faster, and their decisions are automatic, kicking them into motion.

Futures

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:35:00 +0000

Futures traders trade today’s prices, but the settlement is taking place in the future. So we buy if we think prices will increase and sell if we think prices will drop. If you buy (or sell) a futures contract today, you don’t have to hold it until the contract expires; you can simply choose to sell it (or buy it) in the market at the prevailing price. It is advised for beginners not to enter futures trading because it has high risk and high profits. Only a stock market expert would prefer futures trading.

Important terms

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:28:00 +0000

Most commonly used terms. I hope this will be useful for beginners.

Bear and Bull markets
A bear market is one in which prices are low or declining; a bull market
is one in which prices are high or rising.

Open
The first price at which the stock opens when market opens in the morning.

High
The stock price reached at the highest level in a day.

Low
The stock price reached the lowest level in a day.

Close
The stock price at which it remains after the end of market timings or the final price of the stock when the market closes for a day.

Volume
Volume is nothing but quantity.

Bid
The Buying price is called as Bid price.

Offer
The selling price is called offer price.

Bid Quantity
The total number of stocks available for buying is called Bid Quantity.

Offer Quantity
The total number of stocks available for selling is called Offer Quantity.

Transaction
One complete cycle of buying and selling of stocks is called One Transaction.

Squaring off
This term is used to complete one transaction. Means if you buy then have to sell (means square-off) and if you sell then you have to buy (means square-off).

Limit Order
In limit order the buying or selling price has to be mentioned and when the stock price comes to that price then your order will get executed with the mentioned price by you

Market Order
When you put buy or sell price at market rate then the price get executes at the current rate of market. The market order get immediately executed at the current available price.

Stop Loss Trigger Price
Stop loss and trigger price are used to reduce the losses. This is very important term especially if you are doing day trading (intraday). Stop Loss as the name indicates this is used to reduce the loss.

Rolling Settlement Cycle (RSC)
RSC means when you will get your stocks in your demat account or in physical form. In a rolling settlement, each trading day(T) is considered as a trading period and trades executed during the trading day(T) are settled on a T+2 basis i.e. trading day plus two working days.

Earnings Per Share (EPS)
The portion of a company’s profit allocated to each outstanding share
of common stock.

Price/Earnings ratio (price-to-earnings or P/E ratio)
The price of a share of a stock divided by earnings per share (EPS), usually
calculated using the latest year’s earnings. The P/E ratio is also
called the "multiple."

Blue-chip stocks
A term generally applied to stocks of well-established companies that
are known for their track records of solid management, and which have
excellent records of consistent profits and paying dividends to stockholders.
Generally, dividends of blue-chip stocks are relatively moderate
in nature.

Where to find a good company?

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:23:00 +0000

The world around us is full of companies and, where there are companies, there are investment opportunities. Look closely at how your own individual life is supported
by the products around you. Looking for companies to invest in is primarily about
keeping your eyes open and thinking about the world around you.

But always be wary of personal experience. The investment world is littered with companies that may be great to work for, that give excellent customer service and have great products. But if they don’t make a prot or have too much debt, then they might not be the best investment.

Essentially, the art of investment is to narrow your search down to a few companies that you can then study and follow, and based on the information you discover about them, produce better and more informed investment decisions.

These days, most quoted companies will have a website. As a rule, the larger the company, the more investor-specic information will be contained on the site. Without doubt, the most useful piece of information a company can supply to prospective investors is its annual report. Published once a year by every listed company, this report contains details of the company’s latest operational and nancial performance. Examining the annual report is an essential part of assessing the fundamentals of any company.

Perhaps the best website around for a one-stop-shop overview of every listed company is moneycontrol.com. The site presents very informative corporate summaries, covering nancial records and consensus prot forecasts of every listed company. But of course, if you’re looking for opinion, then look no further than

Stockmasterdesk.com. Numerous well-informed investors post their thoughts and other interesting links to help others evaluate the company’s investment merits.

Getting started

noreply@blogger.com (STOCK MASTER) — Fri, 07 Mar 2008 10:11:00 +0000

By now you might have gained some knowledge required to start up with stock market. Now what?? There are a few basic requirements that need to be in place before you could start the process of buying, holding and selling shares. The basic things you need for getting started are: Demat Account, Trading Account and a Bank Account.

Needless to say, a Bank account is required for carrying out various financial transactions associated with trading of shares. A normal Savings Account is enough and nothing additional needs to be done with the Bank account. Nowadays trading is done electronically. Its more like an bank account, with the difference being that instead of cash it holds shares.

Initially open a demat account with a stock broking company and you can right away start buying shares after your account gets activated. The brokers might help you with the process. When shares are bought they are deposited in your Demat account and if shares are sold, they are reduced accordingly from your Demat account. A Trading account is required for you if you wish to trade i.e. buy and sell shares in the stock exchange in a single day.

Now you are all set to buying and selling of shares! Go ahead and start up. I advice you not to invest lot of money initially. It will take practice through trail and error, but eventually you’ll begin to get the feel and gradual flow of a investing momentum all of your own.

I wish you happy trading!