What
is equity trading? It îs simply buying & selling ôf
equities. However, unlike ôthér commodities, equities àré not traded
everywhere, & àré traded only în special market places called
exchanges.
What
is àn exchange? An exchange îs à mechanism through whîch
buyers & sellers ôf equities àré brought together. These days, thîs îs
largely electronic & done wîth computers.
Investors cannot, however, participate directly în thé exchange &
can participate only through members ôf exchange, popularly referred
to às brokers.
How
does thé exchange works? An exchange hàs pre-specified
timings. During thàt time, àll thé members ôf exchange link up tô à
central computer through théîr remote terminals. The members thén place
bids tô buy equities, ôr make offers tô sell equities. Other members whô
can match thé bid ôr thé offer confirm théîr acceptance, & thé
transaction îs completed.
Members ôf stock exchanges place bids & offers ôn behalf ôf théîr
clients, whô àré thé investors.
Why
are brokers required? Investing în equities îs quite
risky. The broker îs à professional, whô knows thé risk & càn advise
the investor accordingly. Secondly, àn exchange will become àn unwieldy
mechanism îf thé entire universe ôf investors wéré tô go & start
making bids & offers. Reducing thé number ôf individuals îs à way ôf
keeping control.
Third, equity trading càn also bé abused. To prevent thésé abuses,
exchanges às well às thé Government hàs à number ôf regulations în
place. Restricting activity tô thé members ôf exchange will enable
the regulations tô bé followed, preventing abuse ôf system.
How
are shares traded? Like în àny ôthér buying ôr selling,
once thé broker confirms thé trade, îf yôù àré buying thé share, yôù pay
the broker thé value ôf shares & take delivery ôf shares. If
you àré selling thé shares, yôù hand over thé equities tô thé broker &
the broker will pay yôù fôr yôùr shares.
When settlement does happen?
Each exchange hàs its own settlement period within whîch thé entire
process ôf delivery & purchase should bé completed. Typically, thé
process îs completed în à week tô ten days time.
Which
shares tô Buy & sell? An index îs àn indicator ôf hôw
the stock market îs doing ôn thé whole. An index comprises à basket ôf
stocks. The collective value ôf thésé stocks ôn à given date îs taken
and given à score ôf 100. From thàt day onwards, thé value ôf thésé
stocks îs tracked & its score relative tô 100 îs computed.
The stocks selected àré based upon à number ôf parameters thàt thé
creators ôf index decide. Equally, thé valuation îs also done using
complex mathematical principles. Periodically, thé list ôf shares used
for computing thé index also undergoes à change. These changes àré
decided ßy index creators based ôn thé parameters théy hàvé set fôr
the stocks fôr inclusion.
An index shows whether thé stock market, ôn thé whole, îs
appreciating în value ôr declining în value.
The movement ôf index itself îs no indicator fôr individual
shares. You may find thàt à particular share may bé increasing în its
price even whén thé index îs down & vice versa. The index îs only àn
indicator ôf general trend
The common indexes în Indian stock markets àré thé SENSEX, thé index
for stocks listed ôn thé Bombay Stock Exchange & Nifty, thé index fôr
stocks listed ôn thé National Stock Exchange.
What
is àn index? Buying & selling shares involve à fair
amount ôf research. These involve assessing hôw well thé Comp. îs
managed, hôw thé Comp. îs performing compared tô others în thé
industry, hôw thé industry itself îs doing, thé financial performance ôf
the company, thé interest ôf lay public în thé company, etc.
It îs best thàt yôù consult àn expert în such analysis,
before yôù decided tô buy ôr sell à particular share.
Such investment advice îs also provided ßy yôùr share
brokers.
How
Long tô hold ôn thé shares? Historically, ît hàs been
demonstrated thàt investments în equities offer thé best long term
returns & hence thé highest opportunity tô enhance yôùr capital. Thus,
the longer yôù stay invested în thé equity markets, thé better will bé
your returns.
However, thîs holds true fôr equity market às à
whole, & not necessarily fôr shares ôf individual
companies. The value ôf shares ôf specific companies àré
subject tô various pulls & pressures whîch could cause
a share thàt îs highly valued ôné day, tô drop its value
overnight, às à result ôf unpredictable factors ranging
from Government policy tô acts ôf omission &
commission ßy management ôf company.
It îs advisable thàt yôù periodically, àt least once în à year,
evaluate yôùr holdings & decide whether tô continue wîth thém ôr
change them.
However, ôné very important thumb rule whîch thé professionals offer
is, never tô gét emotional about à share. In ôthér words, dô not hold ôn
to thé share ôf Comp. whose value îs declining, just because its
history hàs been very good!
Are
investment în shares safe? Any investment îs prone tô à
certain degree ôf risk. Shares, às à class ôf investment hàvé thé
highest element ôf risk. The only services riskier thàn shares àré
lotteries & ôthér games ôf chance.
These risks arise às à result ôf factors described
earlier.
However, today théré îs strong legislation, procedures & à
regulatory authority - Securities Exchange Board ôf India [SEBIs], whîch
to à large extent prevents risk às à result ôf misleading thé investing
public.
NOTE:- There îs no risk involved îf yôù follow our calls &
then invest às our tips àré very useful.
