share market basics
TRANSCRIPT
Demystifying StocksShare Market Basics-Shares, Share Price & Stock Exchanges
Share market can be a source of great intimidation to many individuals.
Some basic information about the share market can not only help you in easing these fears but will also help you realize that the stock market is a great place to generate wealth as well.
Before investing in share market it is essential that you are well versed with the various concepts related to share markets.
Introduction
In plain and simple words a share is a participation in the ownership of a company. It represents a claim on the company's assets in the event of winding up of a
company. It also represents a claim on the company's earning to the extent of once share holding
You buy a share in the hope of realizing returns in the form of dividends and increased price of the share.
What is a Share?
The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers and reduce the risks of investing.
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 popular Stock Exchanges are the Bombay Stock Exchange and the National Stock Exchange.
What is a Stock Exchange?
Listing means admission of securities to dealings on a legal and recognized stock exchange.
The securities may be of any public limited company, Central or State Government, quasi governmental and other financial institutions/corporations, municipalities, etc. Private companies are not listed.
What does listing of stocks mean?
The objectives of listing stocks are: Provide liquidity to stocks/securities Generate savings which in turn can be economic development Safeguard the interest of investors by ensuring full disclosures.
Objectives of Listing Stocks
Laws & Provisions
Various stock exchanges have a dedicated Listing Department to grant approval for listing of securities of companies - in accordance with the provisions of the applicable law/s like
Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957 Companies Act, 1956 Guidelines issued by SEBI and Rules, Bye-laws and Regulations of the exchange itself.
There are four major factors that can cause movements in stock price: 1. New information:
Information is the key. It gives the market a reason to value a stock at a particular price level.
The market will price a stock based on all information that the public is aware of.
As new information comes into the public realm, the market will adjust prices up or down based on how the market perceives the information and it will affect the future earning capacity of the company.
What causes the share price to move?
2. Uncertainty:
What profits a company will make in the future is far from certain. For this reason, we should expect stocks to bounce / drop around a little bit because of the nervousness of the market about the future of the company.
The uncertain future of the company will bring some volatility in share prices even during a period in which there is no new information.
What causes the share price to move?
3. Psychological Factors: Human minds are behind the trading activity in the stock market. This
means that human characteristics are also factors which determine how the share prices will move.
Understanding human psychology is extremely valuable when evaluating investment opportunities because human psychology creates and accentuates many of the opportunities that investors can capitalize on.
What causes the share price to move?
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