What is a stock? A stock is a partial
ownership in a company or an industry, with rights to share in its profits.
When an investor buys a stock of a company, he is called a shareholder or a
stockholder of that company. The benefit of buying a share is that when the
company profits, the shareholders also profit. The company distributes the
profit among its shareholders, which is called the 'dividend'. How do you make profits with
stocks? But many traders make
real profit in stocks using the market price of the stocks. Stocks are traded
in the stock markets. The face value is the nominal value of the stock
that is determined by the issuer of the stock. 'Market price' of a stock
is the price at which currently a stock is traded in the market. This price may
be at premium or lesser than the 'face value' of the stock, depending on the
company's performance and prospects, investors' interests in the company and a
lot of other factors. Market price of a stock
keeps varying as traders trade the stock in the market. Traders often make
money using these variations in the market price of the stock. Stocks are
bought at lower market prices and sold at higher prices later. This is referred
to as 'long' positions in market terms. Similarly stocks can be sold at
a higher market price and bought at a lower price later. This is referred to as
'short' positions in market terms. In these cases, the difference in the
market prices at the time of buying and selling will be seen as profit by the
traders. 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 Any market can be thought
of with two functionality: 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
share, 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. Like opening a bank
account for doing your personal financial transactions, you have to open a Demat
account to trade in the stock market. Demat account refers to Dematerialized
account. This account helps you to buy and sell stocks without the need for
physical paper shares. A Demat Account is a must
for trading the stocks these days. To open a demat account; you should select a
Depository Participant (DP). These days most of the banks
are also DPs. So you can contact any of the DPs with your identity, address
proof and PAN documents for opening a demat account for a prescribed fee by the
DP. The registered DPs are also listed in NSDL (http://www.nsdl.co.in/) and
CDSL (http://www.cdslindia.com/) websites. Stock Brokers are members
of the Stock Exchanges. Only these members can conduct transactions in the
exchange on behalf of the individuals and companies. So if you want to buy or
sell shares in the exchange, you have to contact a stock broker for doing so.
This normally requires the individuals to open an account with the Stock
Broker. So the individual becomes a client for the stock broker. Once the client wishes to
buy a stock, the broker would place the order in the stock exchange on behalf
of the client. When the transaction is done, the broker places the price to the
client. The client pays for the stocks he bought and the broker transfers the
stocks into the Demat account of the client by following the transaction and
settlement procedures. Stocks
are traded in the Stock Market or the stock exchange. In Do I have to be physically present in the stock market to trade
stocks? Not
necessarily. You do not have to be physically present in the stock market to
start trading. For trading in stocks, you can open an account with a stock
broker, who is a registered member of the BSE or the NSE. Once you have opened
the account, you can start trading in the stocks through your local Stock
Broker. The Broker charges a fee called the brokerages or Commission from
you for every trade that you do in the stock market. Online
Trading is a fairly new and popular mechanism for trading stocks, wherein you
can buy and sell the stocks over the Internet. With the flexibility that
Online trading offers to the clients, this mechanism of trading has become hugely
popular among the investor and traders in the recent times. When you
buy or sell stocks online, you will be interacting with an online stock broker,
in contrast to the Human Broker in the conventional trading system. The Online
system places the orders on your behalf, gets them executed in the exchange and
inform the order status to the clients. Like the older system of trading, a fee
is charged as Brokerage or Commission for every trade executed using the online
system. What other services are offered in Online Trading? Apart
from providing a platform for trading stocks, many online systems provide
integrated packages that link your trading account with your Bank
Account. This helps you to buy and sell stocks and get the money transferred to
your Bank account in a hassle free manner. Apart
from this, many Online Systems also offer stock research and Tips from Market
Analysts to the clients, over the Trading Platform. This will help you to
choose and value your trade calls in the Stock Market. How do I Buy / sell stock with my Online Account? Buying or
selling stocks is done by placing 'Orders'. You can place a 'Buy
Order' to buy the stocks at a particular price. Similarly to sell a stock
at a particular price, you have to place a 'Sell Order'. Each Online
platform has different ways to place these orders. But generally, all of these
provide the following basic options when placing an order:
After you
have confirmed the order, it is placed in the stock exchange through the Online
System. Your stocks are actually bought or sold once this order gets executed
in the exchange. What are a Limit Order / Limit Price? A Limit
Order is a Buy / Sell order which you want to get executed at a pre-determined
desired price. This is the most common type of order that investors and traders
place in the market. Buy
Order with Limit Price For
example, if you want to buy the stocks of company 'A' at a price of Rs.300.
However the current price of the stock might be higher than your desired price.
But you feel that the price of this stock would come down sooner and reach Rs.
300. In such a case, you can place a Buy order with a limit price of Rs. 300.
This means that you are instructing the system to buy the stocks of company A,
only if the price reaches Rs. 300 or lesser. So if a
Buy Order gets executed with the Limit Price specified, then you could be
assured that the actual price at which the stocks are purchased by you will always
be either equal to or lesser than the Limit Price specified by you. Sell
Order with Limit Price Similarly
you may have the stocks of company 'B' in your demat account, which you would
like to sell at a price of Rs.500. But currently the market price of the stock
is lesser than 500 and you expect that sooner the price will reach Rs. 500. In
such a case you can place a Sell order with a limit price set to Rs. 500. In
this case, the stocks will be sold only if the price reaches Rs.500 or above. So if a
Sell Order gets executed with the Limit Price specified, then you could be
assured that the actual price at which the stocks are sold by you will always
be either equal to or greater than the Limit Price specified by you. Market
Orders are placed, when you are not concerned too much about the current price
of the stock, but you want to get assured that the stocks are either bought or
sold immediately. So a Market Order can be placed only during the Market
trading Hours. You cannot place a Market Order when the Markets are closed. Market
Order for Buying For
example, consider an instance where in you know the fact that company 'A' will
be making a big announcement in the afternoon today and so the price of the
stocks of this company will definitely rise after this event. So you are
looking for buying this stock desperately now, irrespective of its current
traded price. In such a case, you can place a 'market order' for this stock.
This will place an order for buying the stocks at the Last Traded Price in the
Stock Market. So the chances of buying the stocks increase, as you are trying
to buy the stock very close to its Last Traded Price in the market. Market
Order for Selling Similarly
suppose that you know the price of stocks of company 'B' will go down later in
the day when the company comes out with its Earnings report of Losses for the
Quarter. So you would want to sell the stocks of this company immediately,
before the price of the stocks fall drastically. In such a case, you can place
a Market Order for Selling. This will place an order for selling the stocks at
the Last Traded Price in the Stock Market. So the chances of selling the stocks
increase, as you are trying to sell the stock very close to its Last Traded
Price in the market. |
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