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Home>> Tutorials of stock Market and mutual funds !! |
| What
is equity trading? |
| It is simply buying and selling of equities. However,
unlike other commodities, equities are not traded everywhere,
and are traded only in special market places called exchanges.
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| What
is an exchange? |
| An exchange is a mechanism through which buyers and sellers
of equities are brought together. These days, this is largely
electronic and done with computers. Investors cannot,
however, participate directly in the exchange and can
participate only through members of the exchange, popularly
referred to as brokers.
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| How
does the exchange works? |
| An exchange has pre-specified timings. During that time,
all the members of the exchange link up to a 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 the bid or the offer confirm their
acceptance, and the transaction is completed. Members
of stock exchanges place bids and offers on behalf of
their clients, who are the investors.
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| Why
are brokers required? |
| Investing in equities is quite risky. The broker is a
professional, who knows the risk and can advise the investor
accordingly. Secondly, an exchange will become an unwieldy
mechanism if the entire universe of investors were to go
and start making bids and offers. Reducing the number of
individuals is a way of keeping control. Third, equity
trading can also be abused. To prevent these abuses, exchanges
as well as the Government has a number of regulations
in place. Restricting activity to the members of the exchange
will enable the regulations to be followed, preventing
abuse of the system.
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| How
are shares traded? |
| Like in any other buying or selling, once the broker confirms
the trade, if you are buying the share, you pay the broker
the value of the shares and take delivery of the shares.
If you are selling the shares, you hand over the equities
to the broker and the broker will pay you for your shares. |
When settlement does happen?
|
| Each exchange has its own settlement period within which
the entire process of delivery and purchase should be completed.
Typically, the process is completed in a week to ten days
time. |
| What
is an index? |
| An index is an indicator of how the stock
market is doing on the whole. An index comprises a basket
of stocks. The collective value of these stocks on a given
date is taken and given a score of 100. From that day onwards,
the value of these stocks is tracked and its score relative
to 100 is computed. The stocks selected are based upon
a number of parameters that the creators of the index
decide. Equally, the valuation is also done using complex
mathematical principles. Periodically, the list of shares
used for computing the index also undergoes a change.
These changes are decided by the index creators based
on the parameters they have set for the stocks for inclusion.
An index shows whether the stock market, on the whole,
is appreciating in value or declining in value.
The movement of the index itself is no indicator for
individual shares. You may find that a particular share
may be increasing in its price even when the index is
down and vice versa. The index is only an indicator of
the general trend
The common indexes in Indian stock markets are the SENSEX,
the index for stocks listed on the Bombay Stock Exchange
and Nifty, the index for stocks listed on the National
Stock Exchange.
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Which shares to Buy and sell? |
| Buying and selling shares involve a fair amount of research.
These involve assessing how well the company is managed,
how the company is performing compared to others in the
industry, how the industry itself is doing, the financial
performance of the company, the interest of the lay public
in the company, etc.
It is best that you consult an expert in such analysis,
before you decided to buy or sell a particular share.
Such investment advice is also provided by your share
brokers.
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| How
Long to hold on the shares? |
| Historically, it has been demonstrated that investments
in equities offer the best long term returns and hence the
highest opportunity to enhance your capital. Thus, the longer
you stay invested in the equity markets, the better will
be your returns.
However, this holds true for the equity market as a whole,
and not necessarily for shares of individual companies.
The value of shares of specific companies are subject
to various pulls and pressures which could cause a share
that is highly valued one day, to drop its value overnight,
as a result of unpredictable factors ranging from Government
policy to acts of omission and commission by the management
of the company.
It is advisable that you periodically, at least once
in a year, evaluate your holdings and decide whether to
continue with them or change them.
However, one very important thumb rule which the professionals
offer is, never to get emotional about a share. In other
words, do not hold on to the share of a company whose
value is declining, just because its history has been
very good!
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| Are
investment in shares safe? |
| Any investment is prone to a certain degree of risk. Shares,
as a class of investment have the highest element of risk.
The only services riskier than shares are lotteries and
other games of chance.
These risks arise as a result of factors described earlier.
However, today there is strong legislation, procedures
and a regulatory authority - Securities Exchange Board
of India (SEBI), which to a large extent prevents risk
as a result of misleading the investing public.
NOTE:- There is no risk involved if you follow
our calls and then invest as our tips are very useful.
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