Tutorial 16 : Different methods of buying and selling of shares

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Market Order

When you put buy or sell price of a stock at market rate or select market order option in trading terminal then the price get executes at the current rate of market. The market order gets executed immediately at the current available price.

In market order the shares will get executed at the best current available price. Market order is used if you want to execute your order very fast and at available price.
If you wish to buy or sell shares at any specific price then market orders is not suitable for you then have to go for limit order.

Market order is for those who want to buy or sell immediately at the current available price.

Limit Order

It’s totally different from market order. In limit order the buying or selling price has to be mentioned and when the share price comes to that price then the order will get executed. But here it’s not sure that the price will come to your limit order and the order get executes.

In other words in limit order the specific price is mentioned and trader or investor wait till the stock price reaches that price and once the stock price reaches that price then the order will get execute.
Day traders has to take very precaution while using limit order, especially who make use of margin amount In day trading, because you have to close all your transactions before 3:30 PM and if in case the price doesn’t reach to your limit order then your order will be open (pending) and then you have to go through the penalties.
Importantly limit order and stop loss order are used together to minimize the risk.

Stop Loss Order

Stop loss orders are used to reduce or to minimize the losses. This is very important term especially if you are doing day trading (intraday trading).

Stop Loss order as the name indicates this is used to reduce the losses.
In Stop loss order the trigger price has to be mentioned, by the trader, and once the price reaches the trigger price the order get executed with the best price available between the trigger price and the limit price.
For example - Suppose the trader bought the Reliance Industries at Rs 1000.
So he puts the following order to protect his losses.
The limit order of Rs 990 and stop loss trigger price at Rs 985
So if the reliance industries stock price starts falling and if it reaches 985 then his trade executes with the current market available price.

Note - The stop loss trigger price is placed below the limit price in buy order and above the limit price in sell order.

Short Selling Order

Short selling is the selling of a stock that the seller doesn't own. More specifically, a short sale is the sale of a security that isn't owned by the seller, but that is promised to be delivered.

When you short sell a stock, your broker will lend it to you. The stock will come from the brokerage's own inventory, from another one of the firm's customers, or from another brokerage firm. The shares are sold and the proceeds are credited to your account. Sooner or later, you must "close" the short by buying back the same number of shares (called covering) and returning them to your broker. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. If the price of the stock rises, you have to buy it back at the higher price, and you lose money.

Tutorial 15 : What is called share trading?

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Trading means buy and selling and share trading means buying and selling of shares in share market.

Types of Share Trading

Mainly there are two ways of share trading.

Online Share Trading
Offline Share Trading

Online Share Trading
Doing share trading with help of computer, internet connection and with trading and demat account is called Online Share Trading.
If you would like to do online share trading then you need to have a computer, internet connection and online trading account.
If you are planning to do trading yourself then opening online share trading account is advisable.
Basically people use online share trading who want to trade themselves.

Essential of Online Share Trading
1) Online trading account - You have to open an online trading account with any of the bank or financial trading system like There will be nominal annual charges but in fact nowadays some of them are offering free accounts.
Please read the certain precautions which you need to take while opening the demat and trading account.

2) A computer with internet connection but nowadays some people do trading in internet cafe. Due to fall in electronic prices the computers are available at very affordable prices in the market. If you have electricity problems then you also need to have inverter.
Nowadays you can get internet enabled on your cell phone (which is called GPRS) whose speed will be sufficient to do trading and also the charges of GPRS are very nominal. Also internet broadband connection is available.

3) After successfully opening the online trading account you will receive the username and password with the help of which you can login in online trading system and trade yourself.

4) The trading system executive (with whom you opened trading account) will help you initially about how to use the online trading system.
But in fact you can request for demonstration of their trading system before you open the trading account with them.
Once you get familiar with the system then you can trade yourself at your home or in the internet cafe.

Benefits of Online Share Trading

1) There is no need to depend on any broker or anybody else to place the order or to square off your order. In short you are the boss of your own to do trading (buying and selling) of shares.

2) Its reliable, convenient and you can take your own decisions yourself by actual seeing or analyzing the market on the computer screen instead of calling the broker all the time.

3) It’s not possible or practical for a broker to update you about each and everything about the share market, news which will influence or affect the share market. Because he may be having many other customers like you and even if he updates you it would be late and this news would have been affected the concerned sector or share. So if you are doing online trading yourself, then you may save yourself from big disaster by booking profit or by coming out of the stock.

4) You will get news and updates on various websites and also on your online trading system and most of the information will be free of cost.
Please note - “Always remember share market always get influences (or affected) by the appropriate news. So get updated or be in touch with news all the time. This will benefit you always.

5) By doing online trading yourself, you can see and judge where market (or your share) is heading by seeing different graphs online yourself, which is not possible if you’re trading through broker. Some online trading systems have graphs integrated in their system, so your job is to just add those graphs and check the status of current market (or share) and depending on your analysis you can take steps towards successfully trading. (How to analyze graphs are mentioned in different sections).

6) All your transactions and related documents can be seen online and can also be downloaded to your PC without depending on your broker.
You can also check the status of your amount on daily basis through you online trading system.

Offline Share Trading

Doing share trading with the help of broker or through telephone is called offline share trading.
In other words trading will be done by another person on your behalf based on the instructions given by you.
The other person would be a broker.
The broker will do buying and selling of shares on your behalf depending on the instructions given by you.
So in offline share trading you don’t need to have computer, internet connection but you need to have the offline demat account.

Tutorial 14 : Reading Stock Quotes

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Once you've purchased some stock, it's important to know how to read a stock quote so you can keep track of how your investment is performing.

• Locate the abbreviated name for your stock. It is usually located in the third column.
• The first column (Hi) reports your stock's 52-week high. This is the highest price that has been paid for the stock in the last year.
• The second column (Low) reports your stock's 52-week low. This is the lowest price paid for the stock in the last year.
• The fourth column is the ticker symbol. This is how your stock is identified by the stock exchange.
• The fifth and sixth columns represent your stock's dividend and yield figures, respectively. "Div" is the cash amount that would be paid to shareholders yearly based on the most recent quarterly payment. "Yld" is the cash dividend divided by the closing price of the stock.
• The sixth column is the price-earnings (PE) ratio, which is calculated by dividing the closing price by earnings for the past four quarters combined. This provides a way to compare stock values.
• The seventh column (Vol) shows how many shares of the stock changed hands the previous business day.
• The eighth and ninth columns show the highest (Hi) and lowest (Lo) price paid for the stock on that day.
• The last two columns show the price at which the stock closed for the day (Close) and the net change (Net chg) from the day before.

Investing in the stock market can be fun, exciting and yes, even a little scary. But arming yourself with some basic knowledge about the market will help you take those first steps toward building your personal wealth.

Tutorial 13 : The Bulls and the Bears Market

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A bull market is when the economy is in good shape, the unemployment rate is low, and stock prices are rising. It's easy to pick stocks during a bull market because everything is going up. Beware that bull markets can't last forever, and sometimes lead to disaster if stocks become overvalued.

A bear market occurs when the economy is in bad shape, recession is impending and stock prices take a dive. It is very difficult to pick high-performing stocks during such a time. However, some investors prefer to purchase stock in a bear market, while the prices are low, and stick with them until the prices go back up.

Tutorial 12 : Why Stock Prices Change?

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The price of a stock is generally determined by supply and demand. For instance, if there are more people who want to buy a stock than people who want to sell it, the price will rise. This is because shares of that stock are more rare, and people are willing to pay a higher price for them. The opposite is also true. If there are a lot of shares of stock for sale but no one wants to buy them, the price will quickly drop. Because of these factors, the stock market can appear to have great fluctuations.

Understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislike another stock. Basically, the price movement of a stock indicates what investors feel a company is worth – but don't equate a company's value with the stock price, as that is not always an accurate indicator.

Tutorial 11 : Role of SEBI

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The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory body for the securities market, set up under the securities and Exchange Board of India act, 1992, to “protect the interest of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith and incidental too.”

SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two members from the central government representing the ministries of finance and law, one member from the Reserve Bank of India and two other members appointed by the central government.

SEBI as the watchdog of the industry has an important and crucial role in the market in ensuring that the market participants perform their duties in accordance with the regulatory norms. The Stock Exchange as a responsible Self Regulatory Organization (SRO) function to regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange play complimentary roles to enhance the investor protection and the overall quality of the market.

Tutorial 10 : What is Demat account ?

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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 start 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.
To have latest list of registered DP please visit websites www.nsdl.co.in and 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 www.nsdl.co.in and 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.

Tutorial 9 : Market capitalization

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You probably think that you have never heard of the term “market capitalization” before. You have! When you are talking about “mid-cap”, “small-cap” and “large-cap” stocks, you are talking about market capitalization!

Market cap or market capitalization is simply the worth of a company in terms of it’s shares! To put it in a simple way, if you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the “market capitalization”!

To calculate the market cap of a particular company, simply multiply the “current share price” by the “number of shares issued by the company”! Just to give you an idea, ONGC, has a market cap of “Rs.170, 705.21 Cr” Depending on the value of the market cap, the company will either be a “mid-cap” or “large-cap” or “small-cap” company

Tutorial 8 : The Difference between Stocks and Shares

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Ever wonder what the difference is between stocks and shares? I certainly have. In today's financial markets, the distinction between stocks and shares has been somewhat blurred. Generally, these words are used interchangeably to refer to the pieces of paper that denote ownership in a particular company, called stock certificates. However, the difference between the two words comes from the context in which they are used.

For example, "stock" is a general term used to describe the ownership certificates of any company, and "shares" refers to a the ownership certificates of a particular company. So, if investors say they own stocks, they are generally referring to their overall ownership in one or more companies. Technically, if someone says that they own shares - the question then becomes - shares in what company?

In conclusion, stocks and shares are really basically the same thing. The small distinction between stocks and shares is usually overlooked, and it has more to do with syntax than financial or legal accuracy.

Tutorial 7 : Difference between Trader and Investor

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Trader

Buying and selling of shares based on technical analysis or market trend taking into consideration very short duration like from a single day to couple of days is called trader.
Mostly trading is done throughout the day and wit is called as day trading or intraday trading.
Trader buys and sells the stock and he is not worried about the company’s performance or how good the company is.

Investor
Buying shares after analyzing the fundamentals of the company and holding them for long term like from couple of months to couple of years is called as Investor.
Investor buys a company only after analyzing its worth.
If the current stock price is available at discount (undervalued) then he buys it for long term prospective

Tutorial 6 : How to Execute an order?

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Select a broker of your choice and enter into a broker-client agreement and fill in the client registration form. Place your order with your broker preferably in writing. Get a trade confirmation slip on the day the trade is executed and ask for the contract note at the end of the trade date.

Who is Broker?

As per SEBI (Securities and Exchange Board of India.) regulations, only    registered members can operate in the stock market. One can trade by executing a deal only through a registered broker of a recognized Stock Exchange or through a SEBI registered sub-broker.

What is Settlement cycle?

The accounting period for the securities traded on the Exchange. On the NSE, the cycle begins on Wednesday and ends on the following Tuesday, and on the BSE the cycle commences on Monday and ends on Friday.
At the end of this period, the obligations of each broker are calculated and the
brokers settle their respective obligations as per the rules, bye-laws and regulations of the Clearing Corporation.
If a transaction is entered on the first day of the settlement, the same will be settled on the eighth working day excluding the day of transaction. However, if the same is done on the last day of the settlement, it will be settled on the fourth working day excluding the day of transaction.

What is Rolling settlement?

The rolling settlement ensures that each day's trade is settled by keeping a fixed gap of a specified number of working days between a trade and its settlement. At present, this gap is five working days after the trading day. The waiting period is
uniform for all trades.

Tutorial 5 : Index in stock market

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An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down.

The Sensex is an indicator of all the major companies of the BSE.

The Nifty is an indicator of all the major companies of the NSE.

If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down.

Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE.

Two types of Index

• Nifty
• Sensex

Nifty - Nifty consist of a group of 50 shares.
Sensex - Sensex consist of a group of 30 shares

Tutorial 4 : What is the Stock Market?

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Basically it is an exchange place or a market that facilitates the trading of stocks. People participating in the stock markets range from some casual traders and investors who trade as a hobby, to large fund traders.

In India the most famous exchanges or markets are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Globally there are many markets including the famous New York Stock (NYSE), NASDAQ, London Stock Exchange, Hong Kong Stock Exchange etc..
Any market can be thought of with two functionalities:

Primary Market: Here the companies and industries raise long term funds for their operations by issuing shares. Companies come up with an initial price, mostly with premium for the face value of the shares, which will be distributed to the investors. This is called the Initial Public Offer or the IPO.

Secondary Market: After a Company has finished its IPO, it is listed in the markets. After getting listed and issued shares to investors, the shares can then be sold to other investors in the stock market. Here the people can buy the shares at a current price as determined by other investors in the market.

Tutorial 3 : What is Stock ?

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A stock is a document issued by a company, which entitles its holder to be one of the owners of the Company. A share is directly issued by a company through IPO or can be purchased from the stock market. By owning a share you can earn a portion of the company's profit called dividend. Also, by buying and selling the shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price.

Types of Stock 

There are basically two main types of stock: 

Common and Preferred. 

Common stock represents the majority of stock. It represents ownership in a company and a claim on a portion of profits, or dividends. The dividend amount fluctuates and is not guaranteed. Shareholders are entitled to one vote per share to elect board members, who oversee the major decisions made by the company's management. In the long run, common stock yields higher returns than most other investments.
 

Preferred stock represents a degree of ownership in a company but usually doesn't include voting rights. With this type of stock, shareholders are usually guaranteed a fixed dividend amount.

Tutorial 2 : Indian Stock Market Overview

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The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India.

The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs 851 crore in 1997-98 to Rs 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-2000 (April - August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs 9, 21,500 crore (Rs 9215-bln). The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9, 68,000 crore (Rs 9680-bln). Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourses.

The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks. The BSE Sensex is the older and more widely followed index. Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE On Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency. The scripts traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups. The 'A' group shares represent those, which are in the carry forward system (Badla). The 'F' group represents the debt market (fixed income securities) segment. The 'Z' group scripts are the blacklisted companies. The 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd.