BASICS OF STOCK MARKET

STOCK
Plain and simple, a stock is a share in the ownership of a company. A stock
represents a claim on the company's assets and earnings. As you acquire more stocks, your
ownership stake in the company becomes greater.
(Note: Sometimes different words like shares, equity, stocks etc. are used. All these
words mean the same thing.)
SHARE MARKET
A Share market or Stock market, is a private or public market for the trading of
company stock and derivatives of company stock at an agreed price; these are securities listed
on a stock exchange as well as those only traded privately.
The stocks are listed and traded on stock exchanges which are entities a corporation or
mutual organization specialized in the business of bringing buyers and sellers of the
organizations to a listing of stocks and securities together.
Stock market is known as the cradle of capitalism. It is a place where companies come
to raise their share capital and investors go to invest their surplus funds. Stock market
essentially discharges the functions of "the invisible hand" that channels investment into the
most productive ventures so as to optimize the overall productivity of the economy.
Stock Market is a place where financial instruments like shares, debentures,
commercial papers, bonds etc are bought and sold. Stock markets are popularly known as
stock exchanges. There are many popular stock markets in the world. NASDQ, Tokyo Stock
Exchange, London Stock Exchange are the most popular of the lot. There are many
participants in a stock market. Investors, Speculators, Arbitrators, Traders are different type
of participants of a Stock
Market. Brokers are intermediaries who bring together various participants in a Stock
Market.

Most important function of the stock market is to facilitate trading of financial

instruments. Brokers submit a quote at the stock market on behalf of their clients. Quotes
are specific to the scrip. The quote of the buyer is matched to the quote of the seller and the
transaction takes place. All transactions entered in a stock market are guaranteed by the
Stock Exchange. That means if the buyer or seller fails to meet his obligation, the stock
exchange steps in and meets the commitment of the participant. This instills a lot of
confidence and credibility about the sanctity of the transaction amongst the investing public.
That is the reason why a stock exchange is preferred by investing public to a gray market in
shares even though the latter has much lower transaction cost.
All the participants in the stock market have the same objective i.e. to make a profit.
Investors invest in the stock market with the hope that market value of their investment will
go up and they will be able to make higher returns than in bank deposits. Arbitrages buy in
one market and sell in another market with an objective of making a profit. For example if the
shares of Caltex are quoting at a lesser price at Amsterdam Stock Exchange in comparison to
London Stock Exchange, arbitrages will buy at Amsterdam and sell at London. This will
result in a rise in share price at Amsterdam and fall in share price at London, thus bringing in
price equilibrium among various stock markets in the world.
Speculators operate in the stock market with an objective to make quick money by
guessing the direction of the stock market. If they expect the market to rise, they buy shares
with a very small investment horizon. Similarly if they expect a correction in stock market,
they sell shares, thus imparting an essential element of liquidity in the market. Those who
expect a rise in the stock market and buy relentlessly are known as bulls. Bulls keep the
buying pressure and attempt to take the stock market to dizzy heights. Bull market is a
market scenario where bulls have complete control over the stock markets. When bull market
reaches its peak, investors will make huge profit. Many investors start booking their profit by
selling the investments. Slowly the bulls find that there are more shares than they could
perhaps buy in the stock market. When supply of shares exceeds the demand in the stock
market prices start coming down. This is called correction. Correction is a normal
phenomenon in any bull market. Some times if the sellers are huge in numbers, a negative
sentiment takes over the stock market. Every one attempts to sell their investments with an
objective to salvage profit or reduce losses. When this phase set in, bulls loose control.
Sellers will control stock market. This phase is popularly known are bear run. Bull and Bear
runs follow a cyclical pattern in a stock market.

Normally in a booming economy, companies make huge profits, so markets tend to be

bullish. When the trend of the economy reverses Stock Market experience a bear hug. Thus
the Stock markets reflect the health if the economy and are often called as "barometers" of
the economy
Why Trade In Stock Market
1. You do not need a lot of money to start making money, unlike buying property and
paying a monthly mortgage.
2. It requires very minimal time to trade - unlike building a conventional business
3. Its fast cash and allows for quick liquidation (You can convert it to cash easily, unlike
selling a property or a business).
4. Its easy to learn how to profit from the stock market.

STOCK MARKET SYSTEM

Primary market
stock market is a secondary market
trade stock for listed corporations
Progressive development of stock market

Primary Market
The primary market provides the channel for sale of new securities. Primary market
provides opportunity to issuers of securities; Government as well as corporate to raise
resources to meet their requirements of investment and/or discharge some obligation.
They may issue the securities at face value, or at a discount/premium and these securities
may take a variety of forms such as equity, debt etc. They may issue the securities in
domestic market and/or international market

Why Companies need to issue shares to Public

Most companies are usually started privately by their promoter(s). However, the promoters
capital and the borrowings from banks and financial institutions may not be sufficient for
setting up or running the business over a long term. So companies invite the public to
contribute towards the equity and issue shares to individual investors.
The way to invite share capital from the public is through a Public Issue. Simply stated, a
public issue is an offer to the public to subscribe to the share capital of a company. Once this

is done, the company allots shares to the applicants as per the prescribed rules and regulations
laid down by SEBI.

SECONDARY MARKET
Secondary market refers to a market where securities are traded after being initially offered
to the public in the primary market and/or listed on the Stock Exchange. Majority of the
trading is done in the secondary market. Secondary market comprises of equity markets and
the debt markets
Difference between Primary and Secondary Market is:
1) In Primary Market securities are offered to public for subscription for the purpose of
raising capital or fund
2) Secondary Market is an equity trading venue in which already existing/pre-issued
securities are traded among investors.

EQUITY INVESTMENT
When you buy a share of a company you become a shareholder in that company. Shares are
also known as Equities. Equities have the potential to increase in value over time. It also
provides your portfolio with the growth necessary to reach your long term investment goals.
Research studies have proved that the equities have outperformed most other forms of
investments in the long term.
Equities are considered the most challenging and the rewarding, when compared to other
investment options.
Research studies have proved that investments in some shares with a longer tenure of
investment have yielded far superior returns than any other investment.
However, this does not mean all equity investments would guarantee similar high returns.
Equities are high risk investments. One needs to study them carefully before investing

CONCLUSION

Stock means ownership. As an owner, you have a claim on the assets and earnings of

a company as well as voting rights with your shares.

Stock is equity, bonds are debt. Bondholders are guaranteed a return on their
investment and have a higher claim than shareholders. This is generally why stocks

are considered riskier investments and require a higher rate of return.

You can lose all of your investment with stocks. The flip-side of this is you can make
a lot of money if you invest in the right company.

The two main types of stock are common and preferred. It is also possible for a

company to create different classes of stock.

Stock markets are places where buyers and sellers of stock meet to trade. The NYSE

and the Nasdaq are the most important exchanges in the United States.
Stock prices change according to supply and demand. There are many factors

influencing prices, the most important of which is earnings.

There is no consensus as to why stock prices move the way they do. To buy stocks

you can either use a brokerage or a dividend reinvestment plan (DRIP).

Stock tables/quotes actually aren't that hard to read once you know what everything
stands for!