FAQ’s of Stock market

       What are the instruments traded in the stock markets?

A: There are various types of instruments in the stock market. They include Shares, Mutual Funds, IPO's, Futures and Options.

Why would I choose stocks?
A: 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.

 How can I track stocks?
A: 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. Our website is designed to empower you with all the tools you might require to invest wisely. The Portfolio Tracker Section lets you regularly monitor your portfolio.

Where do I buy stock?
A: 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.

 What are some of the orders I can place?
A: As a customer you can place different orders such as Market orders, Limit Orders, Stop Loss Orders, Cover Orders, After Market Orders, Normal Orders etc.

What is a Market Order?
A: 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.

What is a Limit Order?
A: 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.

What is a Stop Loss Order?
A: 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.

For eg. If you bought a stock at Rs 10, you place a stop loss order with your broker to sell it, if it reaches Rs 8. This helps you prevent further loss, in the eventuality that the price of the stock might dip even further. Thus, it helps limit your loss or protect unrealized profits, whichever the case.

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."

For eg. You place a stop loss order with your broker to sell a stock, if its price reaches to level X. Now, if it does not reach limit X, your broker will not sell the stock.
However, 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.

What are advances and declines?
A: 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.

Basics of Share Markets Introduction

What are the basics of financial instruments?

A: Let us understand the two fundamental types of investments, namely bonds and stocks with an example. Eg. Imagine you want to start your own grocery store. You will need a capital amount to get started. You acquire the requisite funds from a friend and write down a receipt of this loan ' I owe you Rs 1, 00,000 and will repay you the principal loan amount plus 5% interest'. Your friend has just bought a bond (IOU) by lending money to your company.

Thus a bond is a means of investing money by lending money to others. When you invest in bonds, the bond you buy will show the amount of money being borrowed (face value), the interest rate (coupon rate or yield) that the borrower has to pay, the interest payments (coupon payments), and the deadline for paying the money back (maturity dates).

There are several Pro's and Con's to investing in bonds

Pro's
 
  Bonds give higher interest rates compared to short-term investments.
  Bonds are less risky when compared to stocks.

Con's
 
Selling bonds before they're due, may result in a loss, known as a discount.
If the issuer of the bond declares bankruptcy, you may lose your money. Hence you must critically evaluate the credibility of the issuer of the bond, ensuring that he has the capability to repay the bond amount.

Now, let us continue with the same example. To accrue more capital for your new grocery store, you sell half your company to your brother for Rs 50,000. You put this transaction in writing 'my new company will issue 100 shares of stock. My brother will buy 50 shares for Rs 50,000.' Thus, your brother has just bought 50% of the shares of stock of your company.

Thus, to explain stocks:
 
Stocks, also known as Equities, are shares in a company. It is the certificate of ownership of a corporation. In simple terms, when you invest in a company's stock or buy its shares, you own part of a company. Thus, as a stockholder, you share a portion of the profit the company may make, as well as a portion of the loss a company may take. As the company keeps doing better, your stocks will increase in value and yield higher dividends. 

Dividend: A sum of money, determined by a company's directors, paid to shareholders of a corporation out of its earnings.

This example covers the 2 major types of investments: bonds and stocks 

 Rewinding back to the Stock Market Trading history of India
 
A: In the earlier days, stockbrokers kept scouting for 'natural' sites to conduct their trading activities, shifting from one set of Banyan trees to another. As the number of brokers kept increasing and the streets kept overflowing, they simply had no choice but to relocate from one place to another.

Finally in 1854, trading in India found a permanent address, Dalal Street, now synonymous with the oldest stock Exchange in Asia, The Bombay Stock Exchange. With a heritage that goes back to over 130 years, BSE was the first stock exchange in the country to be granted permanent recognition under the Securities Contract Regulation Act, 1956. The exchange has played a pioneering role in the development of the Indian Securities Market - one of the oldest in the world. After India gained independence, the BSE formulated a comprehensive set of guidelines adopted by the Indian Capital markets. Even today, the BSE Sensex remains one of the parameters against which the robustness of the Indian Economy and finance is measured. 

The trading scenario in India then underwent a paradigm shift in 1993, when NSE or National Stock Exchange was recognized as a Stock Exchange. Within just a few years, trading on both the exchanges shifted from an open outcry system to an automated trading environment.
Today, the Indian Securities market successfully keeps pace with its global counterparts through the use of modern day technology.

Primary and Secondary Markets

 Primary Market

A: An Issuer/Company enters the Primary markets to raise capital. They issues new securities in Exchange for cash from an investor (buyer). If the Issuer is selling securities for the first time, these are referred to as Initial Public Offers (IPO's). Summing up, Primary Market is the means by which companies float shares to the general public in an Initial Public Offering to raise capital.
Eg. If the promoters of a private company, say XYZ makes its shares available to investors, company XYZ is said to have entered the primary market.

Secondary Markets
 
A: Once new securities have been sold in the Primary Market, an efficient mechanism must exist for their resale, if investors are to view securities as attractive opportunities. Secondary Market transactions are referred to those transactions where one investor buys shares from another investor at the prevailing market price or at whatever price both the buyer and seller agree upon. The Secondary Market or the Stock Exchanges are regulated by the regulatory authority. In India, the Secondary and Primary Markets are governed by the Security and Exchange Board of India (SEBI).
For eg. If one of the investors who had invested in the shares of company XYZ sold it to another at an agreed upon price, a Secondary Market transaction is said to have taken place. Normally investors transact in securities using an intermediary such as a broker who facilitates the process

  Introduction to SEBI

 
A: The Government of India established the Securities and Exchange Board of India, the regulatory body of stock markets in 1988. Within a short period of time, SEBI became an autonomous body through the SEBI Act passed in 1992, with defined responsibilities that cover both development & regulation of the market while also giving the board independent powers. Comprehensive regulatory measures introduced by SEBI ensured that end investors benefited from safe and transparent dealings in securities.

  The basic objectives of the Board were identified as:
A:  To protect the interests of investors in securities
     To promote the development of Securities Market
     To regulate the Securities Market 

SEBI has contributed to the improvement of the Securities Market by introducing measures like capitalization requirements, margining and establishment of clearing corporations that reduced the risk of credit
Today, the board continues on its two-fold mission of integrating the Securities Market at the National level and also diversifying the trading products to increase the number of traders (including banks, financial institutions, insurance companies, Mutual Funds, primary dealers etc) transacting through the Exchanges. In this context the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD has been a real landmark.

  What are Stock Exchanges?
A Stock Exchange is a place that provides facilities to stock brokers to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus it is the meeting place of the stock buyers and sellers. India's premier Stock Exchanges are the Bombay Stock Exchange and the National Stock Exchange.

Fundamentals of investments

Investing philosophy

  What is investing?
A: Investing lets your money earn some more money, thus getting it to work harder for you. In effect, your savings do not sit idle, but help you profit from them.

  Why should you invest?
A: There are two main reasons why you should invest:
To stay ahead of inflation
As the cost of living keeps increasing and day-to-day expenses keeps rising, investing lets you keep pace with these
changing market conditions.
To achieve financial goals As the saying goesA journey of a thousand miles, begins with a single step. Investing small amounts of money over a period of time brings you closer to your financial goals.

  When should you invest?
A: With investing, time makes money. Thus, the earlier you start investing the better, since you can reach your financial goals faster. So, regardless of your financial position, investing ensures that you accrue wealth over time. 

  Where do I start if I have no savings?
A: The first step to investing begins with saving. You can stay invested, even by saving small portions of money on a monthly basis. Thus, the first successful investment decision, is the decision to start saving, however difficult it may seem at first. After all, where there is a will, you will always find a way!
For eg: If your monthly salary is Rs 20,000 per month and your monthly expenditure is Rs16,000 per month, park the difference of Rs 4,000 into an investment avenue of your choice immediately.

  How can I invest if my savings are meager?
A: The amount invested does not restrain earnings, as long as you keep investing regularly.

  How Do I Get to My Allocation Goal
A: Financial goals can be separated into two types:
Short-term goals - Are immediate goals,ones you would want to achieve now or within a year.For ex- Buying a computer,a bike,a mobile, music system, DVD player etc.Generally,it takes less money to reach these short-term goals. 
Long-term goals - Take you a longer time to reach and need adequate investment planning, as they involve larger sums of money. 
For ex. Buying a luxury car,buying a house,and even starting a business.
Often, it is the first step towards investment that seems to be the hardest.However, with adequate planning and a clear focus on the objectives, you could attain your goals with ease.You should always plan for your goals taking into consideration your risk-return appetite and accordingly apportion your funds into various channels.

Top 10 Stock Investing tips of Warren Buffett

When it comes to stock investing nothing beats the principle of value investing and even better is the way our genius Buffett practices value investing. Here we will try to see the most probable top 10 stock investing strategies that are likely followed by Warren Buffett for building portfolio of Berkshire Hathaway.

To give every one a sense of optimism related to stock investing after the stock market crash of 2008/2009 I would say that mastering stock investing is controlling one sense towards investment. It would not be wrong to say that Warrens Buffett’s control over his investment psychology has made him the best investor of all times.

Few of Buffett’s psychology and his investment wisdoms are discussed below as stock investing tips for new investors:

Stock Investing Tip (1): Live a very modest life, always avoid lavish spending.

In other words save as much as possible to enable you to invest majority of your earnings. Though Warren Buffett is among the richest men in the world but he still lives in a very modest house and still drives his own car. He believes that majority of his earnings shall be used for stock investing to build as much asset as possible. Warren Buffett believes on spending his money to buy assets and avoid liabilities.

Stock Investing Tip (2): Avoid being a compulsive buyer and seller of stocks.

It is not always important to keep on buying and selling stocks. Buffett’s believes that investors shall show patience and should be ready to wait indefinitely for that right time to invest their savings. The right time as per Buffett is during stock market collapse where great companies stocks becomes undervalued and are worth buying.

Stock Investing Tip (3): Do not buy stocks what everyone else is buying

It is best to buy that stock which has not drawn attention of others. When everyone starts buying a particular stock its market price is bound to go up above reasonable price levels making it overvalued. Or in other words buy those stocks which are considered as bad purchase by majority of investors. Of course it is important to check the fundamental of the company before buying one.

Stock Investing Tip (4): Buy stocks of companies which has simple products and services

Buy stocks of company whose product or services are understandable to you. Understanding the business process is important before buying its stock.

Stock Investing Tip (5): Use your own method to evaluate value of stocks

The basic of any stock investing strategy is to learn the process of fundamental evaluation of a company. It is also important to learn the trick evaluating the value of stocks. Fundamental analysis and stocks valuation are two preconditions of value investing.

Stock Investing Tip (6): Always buy undervalued stocks

Warren Buffett calculates an intrinsic value of stock. If the market price of stock is below its intrinsic value then it can be termed as undervalued stocks. Warren Buffett first checks the fundamental strength of company and then calculates its intrinsic value to judge its status of being overvalued or undervalued. Warren Buffett calls purchase of undervalued stocks as buying stocks by maintaining “margin of safety’. The trick Warren Buffett uses to calculate the intrinsic value of stock is the heart of his stock investing wisdom. Intrinsic value is nothing but present value of all future cash flows linked with a particular stocks. In calculating the intrinsic value Buffett pays more attention to (a) return on equity, (b) operating margin, (c) and on reasonable or no debt at all. Warren Buffett does not do analysis of stocks on basis of only one year figures; instead he works on figures for at least last five years.

Stock Investing Tip (7): Buy stocks of companies doing monopoly business

Such companies are becoming less and less in today’s world, but still there are companies you can find who can manipulate their selling price at will without effecting their sales a lot. One example is Microsoft’s Windows OS, Airbus A380 and likes. It may be difficult to locate too many of Microsoft’s today but careful study will make it evident that there are companies that enjoys major competitive advantage than others. Warren Buffett will buy such companies over others.

Stock Investing Tip (8): Only confused people diversify their investments.

If you will ask Warren Buffett about investment diversification he will give you a glare eyes. He believes that all investors shall be ready to wait indefinitely till stocks prices of fundamentally strong companies become undervalued. Till such time all investors shall save all of their earnings, so that when the time comes they shall not fall short of money for stock investing.

Stock Investing Tip (9): Buy stock to hold it for life.

This does not mean that one shall go on holding a stock even if the business has gone sick. Warren Buffett says that periodic evaluation of portfolio is very important. If the company us loosing its competitive edge or its fundamental superiority then it is better to quit it than holding it forever. But what Buffett means when he says that ‘hold it forever’ is that before you buy stock you should evaluate the stock such that you are going to hold it forever as your kids.

Stock Investing Tip (10): Do not do investment to make money, instead invest your money with the objective of generating more and more assets.

There are people who enter stock market for making quick bucks. Warren Buffet will call such people fools. Stock investing is not for making quick bucks, instead it is longer term money making machine. The term is so long term that investors even loose the interest of making money. Then what is the motivation for such long term investors? Their drive for investment is drives by their desire to become financially independent and go on accumulating as much “asset” as possible

stock market price goes down and up? why ?

There are so many reasons/factors that dominate stock markets. You may say it works by law of attraction. When attraction increases price goes up, because people want to have them. When attractions decrease, people try to sell them. This attraction depends on several things that are given below:


Why Stocks Go Down

• profits slipping, sales slipping
• top executives leave the company
• a famous investor sells shares of the company
• an analyst downgrades his recommendation of the stock, maybe from "buy" to "hold"
• the company loses a major customer
• lots of people are selling shares
• a factory burns down
• other stocks in the same industry go down
• another company introduces a better product
• there's a supply shortage, so not enough of the product can be made
• a big lawsuit is filed against the company
• scientists discover the product is not safe
• fewer people are buying the product
• the industry used to be "hot," but now another industry is more popular
• some new law might hurt sales or profits
• a powerful company enters the business
• rumors
• no reason at all

Why Stocks Go Up
. Growing sales and profits
• an exciting new product or service is introduced
• .a great new president hired to run the company
• more exciting new products or services are expected
• the company lands a big new contract
• a great review of a new product in the press or on TV
• the company is going to split its stock
• scientists discover the product is good for something else
• some famous investor is buying shares
• lots of people are buying shares
• an analyst upgrades the company, changing her recommendation from, for instance, "buy" to "strong buy"
• other stocks in the same industry go up
• a competitor's factory burns down
• the company wins a lawsuit
• more people are buying the product or service
• the company expands globally and starts selling in other countries
• the industry is "hot" -- people expect big things for good reasons
• the industry is "hot" -- people don't understand much about it, but they're buying anyway
• the company is bought by another company
• the company might be bought by another company
• the company is going to spin-off part of itself as a new company
• rumors
• for no reason at all

Some basic investment rules while investing in stocks or equities

Investing in the stock market is so easy that a 10 years old child can understand how to invest. People fail to earn money in the stock market because they do not understand some basic terms. Many people prefer to rely on their experience and fall in love with some specific stocks. For this reason, they lose their money sometimes.

Actually, timing is one of the most important factors in stock market. Those who understand the value of time hardly lose their money. In this article, I am going to discuss what factors mostly dominate stock market and how to select best stock in few words.

So now, the question is how to succeed in the stock market. We all want to make money but we fail the main reason behind it lack of knowledge. We fail to realize that the main secret behind smart investing is timing. In addition, fundamental and technical analysis plays a big role in stock market.


Some basic rules while investing to consider:

• Know about your selected company. Remember investing in a well-established company will never risk your money. Most of the time, they give dividend to their respective shareholders. So investing in a very well reputed company is much secure.

• Be attentive about news. News dominates the stock market a lot. Good news can improve share price on the other hand bad news can decrease price. So you have to be careful about the news and announcements.

• Know about fundamental analysis. Fundamental analysis means market capital, paid up capital, number of shares, P/E ratio, EPS etc.You have to know the impacts of these things.

• Technical analysis is related with Price charts, market volume, macd line and so many things. You need to know how to observe these things.
•  

Before making an investment decision you have to understand these things otherwise you may lose your hard earned money. So never ever, invest in stock market like a blind. Make your decision with your own brain.