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Stock trading tutorials
What is equity trading?
It is simply buying and selling of equities. However, unlike other commodities,
equity aren't traded everywhere, and are traded only in special market places
What is an exchange?
An exchange is mechanism through which buyers and sellers of equity are brought
together. These days, this is largely electronic and done with computers.
Investors cannot, however, participate directly in exchange and can participate
only through members of exchange, popularly referred to as brokers.
How does exchange works?
An exchange has pre-specified timings. During that time, all members of exchange
link up to central computer through their remote terminals. The members then
place bids to buy equities, or make offers to sell equities. Other members who
can match bid or offer confirm their acceptance, and transaction is completed.
Members of share exchanges place bids and offers on behalf of their clients, who
Why are brokers required?
Investing in equity is quite risky. The broker is professional, who knows risk
and can advise the investor accordingly. Secondly, an exchange will become an
unwieldy mechanism if entire universe of investors were to go and start making
bids and offers. Reducing No. of individuals is way of keeping control.
Third, equity trading can also be abused. To prevent these abuses, exchanges as
well as Government has No. of regulations in place. Restricting activity to
members of exchange will enable the regulations to be followed, preventing abuse
How are shares traded?
Like in any other buying or selling, once broker confirms trade, if u are buying
share, u pay the broker value of shares and take delivery of shares. If you are
selling shares, u hand over equity to broker and the broker will pay u for your
When settlement does happen?
Each exchange has its own settlement period within which entire process of
delivery and purchase should be completed. Typically, process is completed in
week to ten days time. Which shares to Buy and sell? An index is an indicator of
how the share market is doing on whole. An index comprises basket of stocks. The
collective value of these shares on given date is taken and given score of IOO.
From that day onwards, value of these stocks is tracked and its score relative
to IOO is computed.
The shares selected are based upon No. of parameters that creators of index
decide. Equally, valuation is also done using complex mathematical principles.
Periodically, list of shares used for computing index also undergoes change.
These changes are decided by index creators based on parameters they've set for
the shares for inclusion.
An index shows whether share market, on whole, is appreciating in value or
declining in value.
The movement of index itself is no indicator for individual shares. You can find
that particular stock can be increasing in its price even when index is down and
vice versa. The index is only an indicator of general trend.
The common indexes in Indian share markets are SENSEX, index for shares listed
on Bombay Stock Exchange and Nifty, index for stocks listed on National Stock
What is an index?
Buying and selling shares involve fair amount of research. These involve
assessing how well Comp. is managed, how Comp. is performing compared to others
in industry, how industry itself is doing, financial performance of the company,
interest of lay public in company, etc.
It is best that u consult an expert in such analysis, before u decided to buy or
sell particular share. Such investment advice is also provided by your stock
How Long to hold on shares?
Historically, it's been demonstrated that investments in equity offer best long
term returns and hence highest opportunity to enhance your capital. Thus, the
longer u stay invested in equity markets, better will be your returns.
However, this holds true for equity market as whole, and not necessarily for
shares of individual companies. The value of shares of specific Comp. are
subject to various pulls and pressures which could cause a stock that's highly
valued one day, to drop its value overnight, as result of unpredictable factors
ranging from Government policy to acts of omission and commission by management
It is advisable that u periodically, at least once in year, evaluate your
holdings and decide whether to continue with them or change them.
However, one very Imp. thumb rule which professionals offer is, never to get
emotional about share. In other words, don't hold on to stock of Comp. whose
value is declining, just because its history has been very good!
Are investment in shares safe?
Any investment is prone to certain degree of risk. Shares, as class of
investment have highest element of risk. The only services riskier than shares
are lottery and other games of chance.
These risks arise as result of factors described earlier.
However, today there is strong legislation, procedures and regulatory authority
- Security Exchange Board of India [SEBIs], which to large extent prevents risk
as result of misleading investing public.