Learn Basics of Indian Share Market

Share -Share is nothing but the Ownership of the company divided into small parts and each part is called as Share or Stock. A person carrying a share of a company holds that part of ownership in that company.A person holding maximum shares has maximum ownership like directors, chairman etc.

Share Market -A Share market is the place where buying and selling of shares takes place.Nowdays due to internet and advanced technology buying and selling of shares takes place anywhere in India and also from foreign country, there is no need to be physical present in exchanges like NSE and BSE

Learn Share market and its analysis

Share market and its analysisFinancial markets like NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) are countries economic barometer (a guide to economic growth).
Stock markets like NSE and BSE enable trading of a company's stock

First let us understand the Working of a share (stock) market:

To learn more about how you can earn on the stock market, one has to understand how it works. A person want to buy/sell shares in the share market has to first place his/her order with a broker or can do themselves using online trading systems (this will be discussed later).When the buy order of the shares is communicated to the exchange [either NSE {National Stock Exchange} or BSE {Bombay Stock Exchange}]. The order stays in the queue of exchange's other orders and gets executed if the price of that share comes to that value. The shares purchased will be sent to the you either in physical or demat format.

Rolling Settlement Cycle: (RSC)

RSC means when you will get your shares in your demat account or in physical form.In a rolling settlement, each trading day(T) is considered as a trading period and trades executed during the trading day(T) are settled on a T+2 basis i.e. trading day plus two working days.

Learn Stock Option Trading

Stock options trading refers to trading of contracts to buy (or sell) a stock for a certain price at a certain time in the future. Buyers of stock options have the right to buy the stock at the specified price, but they are not obligated to exercise their option. Sellers of options have the obligation to sell the underlying stock if the buyer of the option wishes to exercise it.


Call Options

A contract to buy is called a 'call option'. The buyer of a call option hopes the price of the underlying stock will rise, allowing him to buy it at less than market value. The seller of the call option expects that the price of the stock will not rise, or at least is willing to accept a partial loss of profits made from selling the call option.

For example: An investor buys a call option on ABC with a 'strike price' (the price the stock can be bought) of Rs 500. The current price of ABC stocks is Rs 400 and the cost of the call is Rs 50. If the price rises above Rs 550 (strike price + cost of call) the buyer could exercise his right to buy and make a profit by reselling on the open market. The seller would still gain from the increase in price from Rs 400 to Rs 550 plus the Rs 50, he made by selling the call. If the price remains below Rs 550 the call would not be exercised and the seller would profit by Rs 50 per share and the buyer would lose his Rs 50 per share.

Stock option trading is permitted on select stocks. The stock options (buy/sell) detail the name of the stock, the strike price (the price the stock can be bought or sold at), the expiration date and the premium (the price of the option itself). After the expiration the option cannot be exercised and is worthless. Options have a value and are actively traded. An option to buy ABC, for example, is listed like this:

ABC Jan '08 225 Call at Rs 20

This tells us that an option to buy 1 share of ABC at Rs 225 before the settlement day ie Thursday in January 2008 can be bought for Rs 20. Options usually expire on the Last Thursday of the specified month, and they are usually traded in lots of 100 or something like that. To buy this particular option you would have to pay Rs 2000 (plus brokerage fees).


Put Options

An option to sell a stock is called a 'put option'. This gives the holder the right (but not the obligation) to sell a particular stock within a certain time period at a certain price. In this situation the buyer is expecting the price of the stock to fall but does not want to sell outright in case the price rebounds. The seller feels that the price is stable or is willing to acquire the stock at the low price.

For example: An investor buys a put option on ABC with a 'strike price' (the price the stock can be sold) of Rs 350. The current price of Microsoft is Rs 400 and the cost of the put is Rs 50. If the price falls below Rs 300 (strike price + cost of put) the buyer could exercise his right to sell at a higher price than market. The seller would have to buy the stock at the higher-than-market price but any losses are offset by the Rs 50 he made by selling the put. If the price remains above Rs 300 the put would not be exercised and the seller would profit by Rs 50 per share and the buyer would lose his Rs 50 per share.

Principles of Stock Option Trading

As can be seen, stock option trading can be used to protect against loss or as an investment opportunity in their own right. They are generally used as part of a stock trading strategy which combines the purchase of stock with the purchase of options.

For example, in a bull (rising) market you could buy stocks and call options and sell put options. This allows you to take full advantage of rising stock prices – the stocks you buy will rise in value, the call options will allow you to buy stock at less than market prices, and if the market dips and the buyer of your put option exercises it, you can pick up additional stocks at low prices. If the buyer does not exercise the option, you make money from the sale of the option.

Conversely, in a bear market, you can sell stocks, sell calls, and buy puts to limit losses and generate profits. Unstable markets can use a mixture of puts and calls to maximize profit potential.

Learn What is Demat account and why it is required?

¨ Securities and Exchange Board of India (SEBI) is a board (corporate body) appointed by the Government of India in 1992 with its head office at Mumbai. Its one of the function is helping the business in stock exchanges and any other securities markets.¨ Demat (short form of Dematerialization) is the process by which an investor can get shares (also called as physical certificates) converted into electronic form maintained in an account with the Depository Participant (DP).¨ DP could be organizations involved in the business of providing financial services like banks, brokers, financial institutions etc. DP’s are like agents of Depository.¨ Depository is an organization responsible to maintain investor's securities (securities can be shares or any other form of investments) in the electronic form. In India there are two such organizations called NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services India Ltd.)¨ Investor’s wishing to open Demat account has to go DP and open the account.¨ Opening the Demat account is as simple as opening the bank account with any bank. As you need bank account to save your money, make cheque payments etc, likewise you need to open a demat account if you want to buy or sell stocks.¨ All shares what you possess will show in your demat account, so you don't have to possess any physical certificates. They are all held electronically in your demat account. As you buy and sell the shares, accordingly your shares will get adjusted in your account.

Is a demat account a must?

The market regulator, the Securities and Exchange Board of India (SEBI), has made it compulsory to open the demat account if you want to buy and sell shares.So a demat account is a must for trading and investing.

How to open a Demat account?

You have to approach a DP to open a Demat account.Most banks are DP participants so you may approach them or else you can contact us.To have latest list of registered DP please visit websites http://www.nsdl.co.in/ and http://www.cdslindia.com/ . A broker and a DP are two different people. A broker is a member of the stock exchange, who buys and sells shares on his behalf and also on behalf of his customers.

Following are the documents required to open Demat account.

When you approach any DP, you will be guided through the formalities of opening an account. The DP will ask to provide some documents as proof of your identity and address. Below is a list but you may not require all of them.PAN card, Voter’s ID, Passport, Ration card, Driver’s license, Photo credit card Employee ID card, IT returns, Electricity/ Landline phone bill etc.

Do you need any shares to open a Demat account?

No. You need not need any shares to open a demat account. A demat account can be opened with no balance of shares. And there is no minimum balance to be maintained either. You can have a zero balance in your account.

How much it cost to open a Demat account?

The charges for account opening, annual account maintenance fees and transaction charges vary between various DP’s. To have latest charges please visit websites of http://www.nsdl.co.in/ and http://www.cdslindia.com/

Finally -

After successfully opening the demat account, the DP will allot “Beneficial Owner Identification” Number, which will be needed to mention for all your future transactions.If you want to sell your shares, you need to place an order with your broker and give a 'Delivery Instruction' to your DP. The DP will debit your account with the number of shares sold. You will receive the payment from your broker.If you want to buy shares, inform your broker about your Depository Account Number, so that the shares bought are credited into your account.

Learn Important points to remember while opening online account

¨ Make multiple enquiries and try get low brokerage trading account.¨ Also discuss about the margin they provide for day trading.¨ Discuss about fund transfer. The fund transfer should be reliable and easy. Fund transfer from your bank account to trading account and visa versa. Some online share trading account has integrated savings account which makes easy for you to transfer funds from your saving account to trading account.¨ Very important is about service they provide, the research calls, intraday or daily trading tips.¨ Also enquire about their services charges and any other hidden if any.¨ And also see how reliable and easy is to contact them in case if any emergency. Emergency closing or squaring off trades in case of any technical or other problems.

Learn Important terms in share market and in share trading

Open - The first price at which the stock opens when market opens in the morning.
High - The stock price reached at the highest level in a day.
Low - The stock price reached the lowest level in a day.
Close - The stock price at which it remains after the end of market timings or the final price of the stock when the market closes for a day.
Volume - Volume is nothing but quantity.
Bid - The Buying price is called as Bid price.
Offer - The selling price is called offer price.
Bid Quantity - The total number of shares available for buying is called Bid Quantity.
Offer Quantity - The total number of shares available for selling is called Offer Quantity.
Buying and selling of shares - Buying is also called as demand or bid and selling is also called as supply or offer.First selling and then buying (this only happens in day trading in Cash) is called as shorting of shares or short sell.
Share Trading - Buying and Selling of shares is called share trading.
Transaction - One complete cycle of buying and selling of shares is called One Transaction.
Squaring off - This term is used to complete one transaction. Means if you buy then have to sell (means square off) and if you sell then you have to buy (means square off).

Limit Order - In limit order the buying or selling price has to be mentioned and when the share price comes to that price then your order will get executed with the mentioned price by you.
Market Order - When you put buy or sell price at market rate then the price get executes at the current rate of market. The market order get immediately executed at the current available price.
Stop Loss Orders - Stop loss orders ("stops") are limits set by traders at which they will automatically enter or exit trades - an order to buy or sell is placed in the market if price reaches a specified limit.A stop loss order is set to limit a trader's potential loss. The stop loss is placed below the current price (to protect a long position) or above the current price (to protect a short position).