Fundamentals of stock market

Stock market basics

1. People think money doesn ’ t grow on trees, but actually it does … You just have to be smart enough to fetch it. Fundamentals of stock market , Gaining awareness about buying and selling of stocks

2. What Is the Stock Market ? A market is a public place where things are bought and sold. The term "stock market" refers to the business of buying and selling stock The word stock simply refers to a supply. In the financial market, stock refers to a supply of money that a company has raised. This supply comes from people who have given the company money in the hope that the company will make their money grow

3. BUYING AND SELLING OF STOCKS Why Companies Issue Stock... If a company wants to grow—maybe build more factories, hire more people, or develop new products—it needs money. It could get a loan from a bank. But then it would owe money. By issuing stock, a company can raise money without going into debt. People who buy the stock are giving the company the money it needs to grow. ...And Why Do People Buy It Owning stock in a company means owning part of that company. Each part is known as a share. If a company has issued 100 shares of stock, and you bought one, you own 1% of that company. People who own stock are called stockholders, or shareholders

4. Bears and Bulls BEARS Bears are cautious animals who don't like to move too fast. An investor is said to be "bearish" if he or she believes the stock market will go down. A "bearish" investor will buy stock cautiously.

5. BULLS Bulls are bold animals who might charge right ahead. . A "bullish" investor believes the market will go up. He or she will charge ahead and put more money into the market. . A "bull market" is a period when stock prices are generally rising.

6. Terms associated with stock Markets Sensex: Sensex stands for sensitive index. It indicates the direction of companies that are traded on BSE. It comprises of 30 most capitalised companies on BSE and each of these companies are assigned a percentage based on its market capitalisation as a ratio of total capitalization. Sensex is the - It represents benchmark Indian market index. globally.

7. NIFTY It is the sensex counterpart on the National Stock Exchange or NSE. It is comprised of 50 companies which include all 30 companies of BSE. It is therefore more broad based as compared to sensex

8. CRASH Crash: As the word suggests, crash refers to a fall in the value of Sensex and Nifty

9. Rally The word suggests the gain made by the Sensex or Nifty during the course of the day. If such gains are made on a regular basis then market participants like investors, brokers etc call it as a market rally.

10. Squaring off: A process whereby investors/traders buy or sell shares and later reverse their trade to complete a transaction is called squaring off of a trade. Correction: A correction (or a measured fall) in the Sensex and Nifty takes place when these indices rise for a few days and then retrace or shave off some of these gains. Dividend: Cash payment made to the shareholders out of the profits of the company. Cash dividends are paid out of corporate earnings and the percentage of earnings paid out varies from corporation to corporation

11. Blue Chips: Well-established and financially strong companies, with little investment risk and a history of earnings and dividend payments. Capitalization: The value of a company as measured by the market price of its common shares, multiplied by the total number of shares that have been issued. Circuit Breaker: A mechanism used to restrain the market when it gets overheated. The Exchange may relax the limit after a cooling off period. Depository Participant (DP): A DP is a representative of the depository in the system. The DP maintains the client's securities account balances and keeps him informed about the status of holdings. According to SEBI regulations, financial institutions (FI's), banks, custodians, stockbrokers, etc. can become DPs. It is comparable with a branch of a bank if a Depository is likened to a bank. A DP is offered depository services only after it gets proper registration from SEBI.

12. Earning Per Share (EPS): Profit after tax divided by average number of shares. Ex Dividend: A Share is described as ex dividend when the buyer is not entitled for the dividend. The seller remains the beneficiary. The day after dividends is paid! Ex Rights : A share is described as ex rights when the buyer is not entitled for the Rights. The seller remains the beneficiary. Ex rights shares are cheaper than Cum Rights and offer a good 'buy' opportunity for investment oriented players. Face Value: The nominal value of a security. All companies issue shares with a fixed denomination called the face value (or par value) of the share. This face value be indicated on the share certificate. Generally Indian shares has a face value of Rs. 10/- Book Value: A measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly. Book Value = Total Assets of the Company- Total Liabilities Total outstanding Shares

13. Market Sentiment A measure of the bullish or bearish attitude of the crowd

14. Intrinsic Value: A term favored by value oriented fundamental analysts to express the actual value of a corporation, as opposed to the current value based on the stock price. Usually calculated by adding the current value of estimated future earning to the book value. Market Capitalization: Total market value of the company on the stock exchange. Total number of shares multiplied by the official price quoted on the stock exchange. Mutual Fund: A portfolio of stocks, bonds or other securities administered by a team of one or more managers from an investment company who make buy and sell decisions on component securities. Capital is contributed by smaller investors who buy shares in the mutual fund rather than the individual stocks and bonds in its portfolio. The return on the funds holdings is distributed back to its contributors, or shareholders, minus various fees and commissions. This system allows small investors to participate in the reduced risk of large and diverse portfolio that they could not otherwise afford to build themselves. They also have the benefit of professional managers overseeing their money who have the time and expertise to analyze and pick securities.

15. Story of a Beggar

16. A beggar was sitting by the side of a road for God knows how long totally uncared for and lamenting his bad luck for the position he was in. Suddenly a stranger appears before him.He asks the beggar..What is this that you are sitting on? It is an old trunk that I have been sitting on for ages. But what is in it asks the stranger. Have you ever cared to open this box? The beggar replies in negative. What is the use says the beggar. The stranger insists to open that box. To his utter surprise the beggar finds the box to be filled with Gold.

17. Awareness Factor The awareness factor is missing in your life, resulting in all kinds of problems including the subject in question- Stock Markets and unnecessary losses. gaining awareness is the most essential aspect ,for becoming a very successful trader.

18. Essential Element of Winning Management of Emotions Traders ride an emotional roller-coaster either they squirm from pain or grin with pleasure Essential element of Winning – CONTROL THE DEMON CALLED EMOTIONS.

19. TECHNICAL ANALYSIS

20. Technical Analysis Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume Technical analysis is based on three assumptions: 1.     The market discounts everything. 2.     Price moves in trends. 3.     History tends to repeat itself.

21. The Market Discounts Everything Stock Prices Stock's Price reflects everything that has or could affect the company Company's fundamentals, along with broader economic factors and market psychology , are all priced into the stock

22. Price Moves in Trends After a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it.

23. History Tends To Repeat Itself Market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends.

24. Technical Analysis vs Fundamental Analysis

25. The Differences Charts vs. Financial Statements Technical Analysis looks at the price movement of a security and uses this data to predict its future price movements. technical analyst approaches a security from the charts. all the information they need about a stock is found in its charts. Fundamental Analysis looks at economic factors, known as fundamentals fundamental analyst starts with the financial statements. Looks at balance sheet cash flow statement income statement ,

26. Time Horizon for the two approaches technical analysis Short Term Approach Can be used on a timeframe of weeks, days or even minutes. Fundamental analysis long-term approach looks at data over a number of years. the numbers analyzed by a fundamentalist are only released over long periods of time. Financial statements are filed quarterly and changes in earnings per share don't emerge on a daily basis like price and volume information

27. Goals of a purchase (or sale) of a stock are different for each approach technical analysis is used for a trade , whereas fundamental analysis is used to make an investment Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price