Day 1: What is stock market?
Where we can buy shares?
Primarily there are two types of stock markets – the primary market and the secondary market. This is true for the Indian stock markets as well.
Primary market:
Here, the shares are issued for the first time. So when a company is getting listed for the first time at the stock exchange and issuing shares – this process is undertaken at the primary market. That means the process of the Initial Public Offering or IPO and the debentures are controlled at the primary stock market.
So, where it is located exactly or where we can buy an IPO?
Luckily, it’s not an specific place. Normally, companies advertise about their IPO. You can buy it’s form from a bank or through a stock broker. Simply, fill the form and post it to the given address. Or otherwise you can apply for an IPO through your online trading account also.
Once the process of IPO is complete. You get shares in your DMAT account and the stock is listed in secondary market for sell and purchase. There you can sell your share or buy already listed companies.
Secondary market:
It’s a market where investors purchase securities or assets from other investors, rather than from buying from companies. Like stock exchanges – New York Stock Exchange (NYSE) and the National Stock exchange, NSE are few secondary markets.
- OTC (Over The Counter):
The phrase “over-the-counter” can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. Normally in lay man language anything traded between two parties without involvement of exchange or third party is an OTC trade. Around the globe OTC trade volume is more than exchange based trade.
In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as “unlisted stock”, these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone.
Financial instruments such as govt. bonds do not trade on a formal exchange and are, therefore, also considered OTC securities. Most debt instruments are traded by investment banks making markets for specific issues. If an investor wants to buy or sell a bond, he or she must call the bank or broker that deals in that bond and asks for quotes.
- Stock Exchanges:
It’s marketplace in which securities, commodities, derivatives and other financial instruments are traded. The core function of an exchange – such as a stock exchange – is to ensure fair and orderly trading, as well as efficient dissemination of price information for any securities trading on that exchange. Exchanges give companies, governments and other groups a platform to sell securities to the investing public.
In today’s date all major exchange provide online trading where any investor can buy or sell stocks online.
So, What is Stock Market?
Normally, an stock exchange is referred as a market place for share trading. So, officially an stock exchange is a stock market. However, the stock market operates through it’s market participants and intermediaries.
- Stock Broker: They open your trading and Dmat account and provide you software to trade.
- Depository: We have two nationalized depositories they maintain your DMAT account.
- Custodians: They help in money flow.
- SEBI: It’s the regulatory authority in India. It takes care of all the rules, regulations and prevents frauds.
So, How do we open a trading account in stock market?
It’s really simple. You need to approach a broker like ShareKhan, ICICI, Angel Broking, SMC and request them to open your account. They’ll ask you few documents like address proof, id card, pan card, photo graphs. It takes hardly one week to open an account after form processing.
It is tough to profit from the stock market?
In my opinion if you don’t know how to operated a computer, they it’ll be tough for you. Like wise if you learn properly nothing is tough. However, to become a successful trader you have to be emotionally controlled.
Normally, you must understand following before you start trading:
- Basic of stock market and trading mechanism
- Risk management using derivative and portfolio management
- Economy and fundamental analysis
- Valuation methods
- Technical analysis for price forecasting
- Money management skills.