Fundamentals Part Three

Instruments traded in the stock markets
there are various types of instruments in the stock market. They include Shares, Mutual Funds, IPO's, Futures and Options.

Why choose stocks
Stocks are one of the most effective tools for building wealth, as stocks are a share of ownership of a company. You thus have great potential to receive monetary benefits when you own stock shares. Owning stocks of fundamentally strong companies simply lets your money work harder for you since they appreciate in value over a period of time while also offering rich dividends on a periodic basis.

Tracking stocks
tracking stocks lets you gain from the best stock opportunities available in the market while also letting you know how the stocks in your portfolio are performing.

Many Sites including BSE & NSE provides all data you require to track your stock

Where to buy stock
Stock trading happens on Stock Exchanges, but one cannot individually buy stocks off the exchange. To do so, you need to find a suitable broker who will understand your needs and buy stocks on your behalf. You can think of them as agents who will conduct transactions for you without actually owning any of the securities themselves. In exchange for facilitating or executing a trade, brokers will charge you a commission.

Market Order
A market order is an order to buy or sell a stock at the current market price. It signals your broker to execute the order at the best price currently available. However, as market prices keep changing, a market order cannot guarantee a specific price.

Limit Order
To avoid buying or selling a stock at a price higher or lower than you wanted, you need to place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price. You could use a limit order when you want to set the price of the stock. In other words, you want to sell/buy particular scrip at a price other than the Current Market Price. However, a limit order guarantees a price but cannot guarantee execution of the trade, because the scrip might not reach the desired price on that particular trading day owing to Market related factors.

Stop Loss Order
A stop loss order is a Normal order placed with a broker to sell a security when it reaches a certain predetermined price Trigger Price. Sometimes the market movements defy your expectations. Such market reversals often result in loss bearing transactions. The stop loss trigger price is your defense mechanism- an amount at which you will be able to sustain yourself against such unanticipated market movements. Your stop loss instruction is an order to sell when the price of contracts reaches a pre-determined level - the trigger price. Naturally, this price cannot be more than the price of the stock you are trading.


Good-till-canceled (GTC) or Day Order Or Normal Orders Day orders are orders given to your broker that hold true only during the period of the trading day for which the orders have been given. If the order has not been executed on that day, it will not be passed on to the next trading day. Thus they are orders that are only "good until it is canceled" or "good for the day."

The stop loss order given to your broker will not hold true for the next day. For, even if the stock reaches level X on Day 2, he will not execute the trade till you instruct him to do so again.

Advances and declines
Advances and declines give you an indication of how the overall market has performed. You get a good overview of the general market direction.

As the name suggest ' advances' will inform you how the market has progressed.
'Declines' signal if the market has not performed as per expectations. The Advance-Decline ratio is a technical Analysis tool that indicates market movement. Advance Decline ratio is calculated using the formula:

Number of stocks that advanced/number of stocks that declined.

Generally, it is seen that in Bullish markets the number of stocks that advance is more than the ones that declined and the converse can be said to hold true in a bearish market. The breadth of market indicator is used to gauge the number of stocks advancing and declining for the day.
'Remains unchanged' is a term used if the market scenario shows no advancement or decline compared to the earlier day.

Advances and declines are calculated from the previous days closing results. However, a market that is significantly on one side either in terms of advances or declines may have a hard time reversing out of that direction the next day.