stock market & mutual funds

8/6/2019 Stock Market & Mutual Funds

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INTRODUCTION

STOCKS

Table of Contents1) Introduction2) Market Chart3) Primary Market-IPO-Why Share Listed-Procedures

-Pricing-Red herring-IPO Lock-ups4) What Are Stocks?5)History of Stock /Stock market6) Importance of stock market-Function& Purpose- Relation in modern financial system / Sensitivity7) Different Types Of Stocks8) How Stocks and stock market works or Trade

9) Stock market Index10)derivative Instruments11)Leveraged Strategies12) What Causes Stock Prices To Change?13) Buying Stocks14) How to Read A Stock Table/Quote15) The Bulls, The Bears And The Farm16)Reliance Petroleum Limited Details


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Introduction

As long as you enjoy investing, you'll be willing to do the homework and stay in the game. That's why I try to make the show so entertaining,

because if you aren't interested, you'll either miss the opportunity to make money in the market or not pay enough attention and end up losing your shirt.Jim Cramer

Definition describes about - Money - Stock Market - Losing - Enjoyment - Investing - Opportunity

Wouldn't you love to be a business owner without ever having to show up at work? Imagine if you could sit back, watch your company grow, and collect the dividend cheques as the money rolls in! This situation might sound like a pipe dream, but it's closer toreality than you might think.

Many of us would like to try our luck in the Stock markets. Yes, Why Not ? Trading stocks is one of the most lucrative methods of makingmoney. As you've probably guessed, we're talking about owning stocks. This fabulous category of financial instruments is, without adoubt, one of the greatest tools ever invented for building wealth. Stocks are a part, if not the cornerstone, of nearly any investment

portfolio. When you start on your road to financial freedom, you need to have a solid understanding of stocks and how they trade onthe stock market.

Over the last few decades, the average person's interest in the stock market has grown exponentially. What was once a toy of the richhas now turned into the vehicle of choice for growing wealth? This demand coupled with advances in trading technology has opened
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up the markets so that nowadays nearly anybody can own stocks.

Despite their popularity, however, most people don't fully understand stocks. Much is learned from conversations around the water

cooler with others who also don't know what they're talking about. Chances are you've already heard people say things like, "Bob'scousin made a killing in XYZ company, and now he's got another hot tip..." or "Watch out with stocks--you can lose your shirt in amatter of days!" So much of this misinformation is based on a get-rich-quick mentality, which was especially prevalent during the

amazing dotcom market in the late '90s. People thought that stocks were the magic answer to instant wealth with no risk. The ensuingdotcom crash proved that this is not the case. Stocks can (and do) create massive amounts of wealth, but they aren't without risks. Theonly solution to this is education. The key to protecting yourself in the stock market is to understand where you are putting your money.

It is for this reason that we've created this tutorial: to provide the foundation you need to make investment decisions yourself. We'll

start by explaining what a stock is and the different types of stock, and then we'll talk about how they are traded, what causes prices tochange, how you buy stocks and much more.

CHART

(MARKET)

Market Flow


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Market

Capital market

Secondary MarketPrimary Market

Money Market

IPO (BeforeListing To stock)

Stocks (After Listing toExchange)


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PRIMARY MARKET


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Primary Market

Initial Public Offering

Initial Public Offering (IPO's) is the first sale of stocks of a company which is made available to the public to raise capital for thecompany. Generally it's the smaller companies which go in for Initial public offering (IPO's) to expand their size but some large

private companies also go in for Initial public offering (IPO's) to become publicly traded. An underwriting firm is generally associatedwith the company. They fix the date of issue of shares, the offer price, what kind of share to be issued like common or preferred etc.

Since only the smaller and newly formed companies generally go in for Initial public offering (IPO's) investing in them can be a risky proposition as there is no historical data to analyze their performance. How the stock will perform in future or what will be the

opening price on the first day will be difficult to predict.

Why are shares listed?

When the shares of a company are listed on the stock exchange, the capital which the company gets goes directly to the company. Theadvantage of an Initial public offering (IPO's) is that the company gets a huge amount of capital from the investors for future growthof the company. The company may again go in for a public issue to raise further capital for the company. The company doesn't pay

back the initial capital to the investors, but the investors get a share in the profits of the company. The company can also come outwith a rights issue which will further help in rising of capital at the same time increasing the value of the shares in absolute terms of the existing shareholders.

Procedure

Generally one or more investment banks generally called underwriters are associated with the sale of shares. The issuing companycalled issuer enters into a contract with the lead underwriter to sell the shares to the public. If the Initial public offering (IPO's) is alarge one, then there is a syndicate of underwriters with a lead underwriter who work on a commission basis based on the percentageof the value of shares sold.


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Since there are a lot of legal formalities also involved, the Initial public offering (IPO's) also involve one or two law firms like thewhite shoe firm of New York City.

Public offerings are most sold to institutional investors but some shares are also allocated to retail investors. When there is anover allotment of shares, the issuer allows the underwriter to increase the size of offering by 15% which is known as the green shoeoption.

In the late 1990s, in USA a lot of venture capital companies crashed in on the dotcom boom and came out with Initial public offering(IPO's) making many millionaires in the bargain. But inspire of this the companies faced a financial crisis later on as a lot of thecompanies liquidated the capital amount.

Pricing

Investment banks have to consider many options before they arrive at a correct pricing of the shares. The pricing has to be low enoughto attract investors and at the same time high enough to raise enough capital for the company. As under pricing though may prove

beneficial to the investors who will get the shares at the offer price, the company may lose out in terms of more capital money beingraised. Whereas in the case of overpricing, the underwriters may not be in a position to sell of their shares or in case of it being listed

below the market price, then the credibility of the company goes down.

So the price of the Initial public offering (IPO's) is arrived at by the company either with the help of lead managers or through a process of book building.

Red Herring

Red Herring is the preliminary prospectus of the company, which describes the new issue of the stock and the prospects of thecompany. It is a registration statement which is filed with the SEC. The Red Herring doesn't contain any issue price in it. It is calledthe Red Herring as there is a paragraph is red which states that the company is not selling its shares to the public without registrationwith the SEC. (Securities and Exchange Commission).

IPO Lock-up


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After the company has gone public, the company usually enters into a contract with the investors say for a period of 90-180 dayswherein those holding majority stakes in the company are not permitted to sell their shares. This is done so that the market is notflooded with too many of the company's shares which may send the share prices spiraling down. But once the lock-up period is over

then the investor can dispose his shares.

What Are Stocks?

The Definition of a Stock

Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings. Asyou acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all meansthe same thing.

The expression 'stock market' refers to the market that enables the trading of company stocks (collective shares), other securities, andderivatives. Bonds are still traditionally traded in an informal, over-the-counter market known as the bond market. Commodities aretraded in commodities markets, and derivatives are traded in a variety of markets (but, like bonds, mostly 'over-the-counter')

Being an Owner Holding a company's stock means that you are one of the many owners (shareholders) of a company and, as such,you have a claim (albeit usually very small) to everything the company owns. Yes, this means that technically you own a tiny sliver of every piece of furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of thecompany's earnings as well as any voting rights attached to the stock.

A stock is represented by a stock certificate. This is a fancy piece of paper that is proof of your ownership. In today's computer age,you won't actually get to see this document because your brokerage keeps these records electronically, which is also known as holdingshares "in street name". This is done to make the shares easier to trade. In the past, when a person wanted to sell his or her shares, that

person physically took the certificates down to the brokerage. Now, trading with a click of the mouse or a phone call makes life easier for everybody.

Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead, one vote per share to elect the board of directors at annual meetings is the extent to which you have a say in the company. For instance, being a


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Microsoft shareholder doesn't mean you can call up Bill Gates and tell him how you think the company should be run. In the same lineof thinking, being a shareholder of Anheuser Busch doesn't mean you can walk into the factory and grab a free case of Bud Light!

The management of the company is supposed to increase the value of the firm for shareholders. If this doesn't happen, theshareholders can vote to have the management removed, at least in theory. In reality, individual investors like you and I don't ownenough shares to have a material influence on the company. It's really the big boys like large institutional investors and billionaireentrepreneurs who make the decisions.

For ordinary shareholders, not being able to manage the company isn't such a big deal. After all, the idea is that you don't want to haveto work to make money, right? The importance of being a shareholder is that you are entitled to a portion of the companys profits andhave a claim on assets. Profits are sometimes paid out in the form of dividends . The more shares you own, the larger the portion of the

profits you get. Your claim on assets is only relevant if a company goes bankrupt . In case of liquidation , you'll receive what's left after all the creditors have been paid. This last point is worth repeating: the importance of stock ownership is your claim on assets and

earnings. Without this, the stock wouldn't be worth the paper it's printed on.

Another extremely important feature of stock is its limited liability, which means that, as an owner of a stock, you are not personallyliable if the company is not able to pay its debts. Other companies such as partnerships are set up so that if the partnership goes

bankrupt the creditors can come after the partners (shareholders) personally and sell off their house, car, furniture, etc. Owning stock means that, no matter what, the maximum value you can lose is the value of your investment. Even if a company of which you are ashareholder goes bankrupt, you can never lose your personal assets.

Debt vs. Equity

Why does a company issue stock? Why would the founders share the profits with thousands of people when they could keep profits tothemselves? The reason is that at some point every company needs to raise money. To do this, companies can either borrow it fromsomebody or raise it by selling part of the company, which is known as issuing stock. A company can borrow by taking a loan from a

bank or by issuing bonds. Both methods fit under the umbrella of debt financing . On the other hand, issuing stock is called equityfinancing . Issuing stock is advantageous for the company because it does not require the company to pay back the money or makeinterest payments along the way. All that the shareholders get in return for their money is the hope that the shares will someday beworth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial
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public offering (IPO) which is discuss earlier.

It is important that you understand the distinction between a company financing through debt and financing through equity. When you buy a debt investment such as a bond, you are guaranteed the return of your money (the principal) along with promised interest payments. This isn't the case with an equity investment. By becoming an owner, you assume the risk of the company not beingsuccessful - just as a small business owner isn't guaranteed a return, neither is a shareholder. As an owner, your claim on assets is lessthan that of creditors. This means that if a company goes bankrupt and liquidates, you, as a shareholder, don't get any money until the

banks and bondholders have been paid out; we call this absolute priority . Shareholders earn a lot if a company is successful, but theyalso stand to lose their entire investment if the company isn't successful.

Risk

It must be emphasized that there are no guarantees when it comes to individual stocks. Some companies pay out dividends, but manyothers do not. And there is no obligation to pay out dividends even for those firms that have traditionally given them. Withoutdividends, an investor can make money on a stock only through its appreciation in the open market. On the downside, any stock maygo bankrupt, in which case your investment is worth nothing.

Although risk might sound all negative, there is also a bright side. Taking on greater risk demands a greater return on your investment.This is the reason why stocks have historically outperformed other investments such as bonds or savings accounts. Over the long term,an investment in stocks has historically had an average return of around 10-12%.
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The Bombay Stock Exchange in India .

Market participants

Many years ag`o, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories(and emotional ties) to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers arelargely institutions (e.g., pension funds , insurance companies , mutual funds , hedge funds , investor groups, and banks ). The rise of theinstitutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed"(and exorbitant) fees being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the

brokers' solid front on fees (they then went to 'negotiated' fees, but only for large institutions)[ citation needed ].
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However, corporate governance (at least in the West) has been very much adversely affected by the rise of (largely 'absentee')institutional 'owners

Importance of stock market

Function and purpose

The stock market is one of the most important sources for companies to raise money . This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange

provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, comparedto other less liquid investments such as real estate .

History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and caninfluence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investmentand vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eyeon the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financialstability is the raison d'tre of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee paymentto the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity.
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Relation of the stock market to the modern financial system

The financial system in most western countries has undergone a remarkable transformation. One feature of this development is

disintermediation . A portion of the funds involved in saving and financing flows directly to the financial markets instead of beingrouted via banks' traditional lending and deposit operations. The general public's heightened interest in investing in the stock market,either directly or through mutual funds , has been an important component of this process. Statistics show that in recent decades shareshave made up an increasingly large proportion of households' financial assets in many countries. In the 1970s, in Sweden , deposit accounts and other very liquid assets with little risk made up almost 60 per cent of households' financial wealth, compared to less than20 per cent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takesthe form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds,insurance investment of premiums, etc. The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permitting a higher proportion of shares to bonds. Similar tendencies are to

be found in other industrialized countries . In all developed economic systems, such as the European Union , the United States , Japan and other developed nations, the trend has been the same: saving has moved away from traditional (government insured) bank depositsto more risky securities of one sort or another.

The stock market, individual investors, and financial risk

Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. Stock prices fluctuatewidely, in marked contrast to the stability of (government insured) bank deposits or bonds. This is something that could affect not only

the individual investor or household, but also the economy on a large scale. The following deals with some of the risks of the financialsector in general and the stock market in particular. This is certainly more important now that so many newcomers have entered thestock market, or have acquired other 'risky' investments (such as 'investment' property, i.e., real estate and collectables ).

With each passing year, the noise level in the stock market rises. Television commentators, financial writers, analysts, and marketstrategists are all overtalking each other to get investors' attention. At the same time, individual investors, immersed in chat rooms and
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message boards, are exchanging questionable and often misleading tips. Yet, despite all this available information, investors find itincreasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, and people who have turned toinvesting for their children's education and their own retirement become frightened. Sometimes there appears to be no

This is a quote from the preface to a published biography about the long-term value-oriented stock investor Warren Buffett .[2] Buffett began his career with $100, and $105,000 from seven limited partners consisting of Buffett's family and friends. Over the years he has built himself a multi-billion-dollar fortune. The quote illustrates some of what has been happening in the stock market during the endof the 20th century and the beginning of the 21st.

The behavior of the stock market
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NASDAQ in Times Square, New York City .

From experience we know that investors may temporarily pull financial prices away from their long term trend level. Over-reactionsmay occurso that excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices unduly low.

New theoretical and empirical arguments have been put forward against the notion that financial markets are efficient.

According to the efficient market hypothesis (EMH), only changes in fundamental factors, such as profits or dividends, ought to affectshare prices. (But this largely theoretic academic viewpoint also predicts that little or no trading should take placecontrary to fact since prices are already at or near equilibrium, having priced in all public knowledge.) But the efficient-market hypothesis is sorelytested by such events as the stock market crash in 1987 , when the Dow Jones index plummeted 22.6 percentthe largest-ever one-dayfall in the United States. This event demonstrated that share prices can fall dramatically even though, to this day, it is impossible to fix
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market. (And later amplified the gloom which descended during the 2000 - 2002 crash, so that by summer of 2002, predictions of aDOW average below 5000 were quite common.)

Irrational behavior

Sometimes the market tends to react irrationally to economic news, even if that news has no real effect on the technical value of securities itself. Therefore, the stock market can be swayed tremendously in either direction by press releases, rumors, euphoria andmass panic .

Over the short-term, stocks and other securities can be battered or buoyed by any number of fast market-changing events, making thestock market difficult to predict.

Crashes

A stock market crash is often defined as a sharp dip in share prices of equities listed on the stock exchanges . In parallel with variouseconomic factors, a reason for stock market crashes is also due to panic. Often, stock market crashes end up with speculativeeconomic bubbles.

There have been famous stock market crashes that have ended in the loss of billions of dollars and wealth destruction on a massivescale. An increasing number of people are involved in the stock market, especially since the social security and retirement plans are

being increasingly privatized and linked to stocks and bonds and other elements of the market. There have been a number of famousstock market crashes like the Wall Street Crash of 1929 , the stock market crash of 19734 , the Black Monday of 1987 , the Dot-com

bubble of 2000. But those stock market crashes did not begin in 1929, or 1987. They actually started years or months before the crash

really hit hard.

One of the most famous stock market crashes started October 24, 1929 on Black Thursday. The Dow Jones Industrial lost 50% duringthis stock market crash. It was the beginning of the Great Depression . Another famous crash took place on October 19, 1987 Black Monday. On Black Monday itself, the Dow Jones fell by 22.6% after completing a 5 year continuous rise in share prices. This eventnot only shook the USA, but quickly spread across the world. Thus, by the end of October, stock exchanges in Australia lost 41.8%,Canada lost 22.5%, Hong Kong lost 45.8% and Great Britain lost 26.4%. Names Black Monday and Black Tuesday are also usedfor October 28-29,1929, which followed Terrible Thursday starting day of the stock market crash in 1929. The crash in 1987 raised
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some mysticism main news or events did not predict the catastrophe and visible reasons for the collapse were not identified. Thisevent had put many important assumptions, of modern economics , under uncertainty, namely, the theory of rational conduct of human

being , the theory of market equilibrium and the hypothesis of market efficiency . For some time after the crash, trading in stock

exchanges worldwide was halted, since the exchange's computers did not perform well owing to enormous quantity of trades beingreceived at one time. This halt in trading allowed the Federal Reserve system and central banks of other countries to take measures tocontrol the spreading of worldwide financial crisis. In the United States the SEC introduced several new measures of control into thestock market in an attempt to prevent a re-occurrence of the events of Black Monday. Computer systems were upgraded in the stock exchanges to handle larger trading volumes in a more accurate and controlled manner. The SEC modified the margin requirements inan attempt to lower the volatility of common stocks, stock options and the futures market. The New York Stock Exchange and theChicago Mercantile Exchange introduced the concept of a circuit breaker. The circuit breaker halts trading if the Dow declines a

prescribed number of points for a prescribed amount of time.
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Robert Shiller 's plot of the S&P Composite Real Price Index, Earnings, Dividends, and Interest Rates, from Irrational Exuberance , 2ded.[6] In the preface to this edition, Shiller warns that "[t]he stock market has not come down to historical levels: the price-earnings

ratio as I define it in this book is still, at this writing [2005], in the mid-20s, far higher than the historical average. People still placetoo much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments willsomeday make them rich, and so they do not make conservative preparations for possible bad outcomes."
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Price-Earnings ratios as a predictor of twenty-year returns based upon the plot by Robert Shiller (Figure 10.1 [6], source ). Thehorizontal axis shows the real price-earnings ratio of the S&P Composite Stock Price Index as computed in Irrational Exuberance(inflation adjusted price divided by the prior ten-year mean of inflation-adjusted earnings). The vertical axis shows the geometric

average real annual return on investing in the S&P Composite Stock Price Index, reinvesting dividends, and selling twenty years later.Data from different twenty year periods is color-coded as shown in the key. See also ten-year returns . Shiller states that this plot "confirms that long-term investorsinvestors who commit their money to an investment for ten full yearsdid do well when priceswere low relative to earnings at the beginning of the ten years. Long-term investors would be well advised, individually, to lower their exposure to the stock market when it is high, as it has been recently, and get into the market when it is low." [6]

A stock market crash is often defined as a sharp dip in share prices of equities listed on the stock exchanges . In parallel with variouseconomic factors, a reason for stock market crashes is also due to panic. Often, stock market crashes end up with speculativeeconomic bubbles.

There have been famous stock market crashes that have ended in the loss of billions of dollars and wealth destruction on a massivescale. An increasing number of people are involved in the stock market, especially since the social security and retirement plans are being increasingly privatized and linked to stocks and bonds and other elements of the market. There have been a number of famousstock market crashes like the Wall Street Crash of 1929 , the stock market crash of 19734 , the Black Monday of 1987 , the Dot-com

bubble of 2000. But those stock market crashes did not begin in 1929, or 1987. They actually started years or months before the crashreally hit hard.

One of the most famous stock market crashes started October 24, 1929 on Black Thursday. The Dow Jones Industrial lost 50% duringthis stock market crash. It was the beginning of the Great Depression . Another famous crash took place on October 19, 1987 Black Monday. On Black Monday itself, the Dow Jones fell by 22.6% after completing a 5 year continuous rise in share prices. This event

not only shook the USA, but quickly spread across the world. Thus, by the end of October, stock exchanges in Australia lost 41.8%,Canada lost 22.5%, Hong Kong lost 45.8% and Great Britain lost 26.4%.

Names Black Monday and Black Tuesday are also used for October 28-29,1929, which followed Terrible Thursday starting dayof the stock market crash in 1929. The crash in 1987 raised some mysticism main news or events did not predict the catastrophe andvisible reasons for the collapse were not identified. This event had put many important assumptions, of modern economics , under
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uncertainty, namely, the theory of rational conduct of human being , the theory of market equilibrium and the hypothesis of market efficiency . For some time after the crash, trading in stock exchanges worldwide was halted, since the exchange's computers did not

perform well owing to enormous quantity of trades being received at one time. This halt in trading allowed the Federal Reserve system

and central banks of other countries to take measures to control the spreading of worldwide financial crisis. In the United States theSEC introduced several new measures of control into the stock market in an attempt to prevent a re-occurrence of the events of Black Monday. Computer systems were upgraded in the stock exchanges to handle larger trading volumes in a more accurate and controlledmanner. The SEC modified the margin requirements in an attempt to lower the volatility of common stocks, stock options and thefutures market. The New York Stock Exchange and the Chicago Mercantile Exchange introduced the concept of a circuit breaker

Different Types Of Stocks

There are two main types of stocks: common stock and preferred stock .

Common Stock

Common stock is, well, common. When people talk about stocks they are usually referring to this type. In fact, the majority of stock is

issued is in this form. We basically went over features of common stock in the last section. Common shares represent ownership in acompany and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee themajor decisions made by management.

Over the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the common shareholderswill not receive money until the creditors, bondholders and preferred shareholders are paid.
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Preferred Stock

Preferred stock represents some degree of ownership in a company but usually doesn't come with the same voting rights. (This may

vary depending on the company.) With preferred shares, investors are usually guaranteed a fixed dividend forever. This is differentthan common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders). Preferred stock may also be callable,meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium).

Some people consider preferred stock to be more like debt than equity. A good way to think of these kinds of shares is to see them as being in between bonds and common shares.

Different Classes of Stock

Common and preferred are the two main forms of stock; however, it's also possible for companies to customize different classes of stock in any way they want. The most common reason for this is the company wanting the voting power to remain with a certaingroup; therefore, different classes of shares are given different voting rights. For example, one class of shares would be held by aselect group who are given ten votes per share while a second class would be issued to the majority of investors who are given onevote per share.

When there is more than one class of stock, the classes are traditionally designated as Class A and Class B . Berkshire Hathaway(ticker: BRK), has two classes of stock. The different forms are represented by placing the letter behind the ticker symbol in a formlike this: "BRKa, BRKb" or "BRK.A, BRK.B".

How Stocks or stock marketworks or Trade

Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. You've probably seen pictures of a trading floor, in whichtraders are wildly throwing their arms up, waving, yelling, and signaling to each other. The other type of exchange is virtual,
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composed of a network of computers where trades are made electronically.

The purpose of a stock market is to facilitate the exchange of securities between buyers and sellers, reducing the risks of investing.Just imagine how difficult it would be to sell shares if you had to call around the neighborhood trying to find a buyer. Really, a stock market is nothing more than a super-sophisticated farmers' market linking buyers and sellers.

Before we go on, we should distinguish between the primary market and the secondary market . The primary market is where securitiesare created (by means of an IPO) while, in the secondary market, investors trade previously-issued securities without the involvementof the issuing-companies. The secondary market is what people are referring to when they talk about the stock market. It is importantto understand that the trading of a company's stock does not directly involve that company.

The New York Stock Exchange

The most prestigious exchange in the world isthe New York Stock Exchange (NYSE). The"Big Board" was founded over 200 years agoin 1792 with the signing of the ButtonwoodAgreement by 24 New York Citystockbrokers and merchants. Currently the

NYSE, with stocks like General Electric,McDonald's, Citigroup, Coca-Cola, Gilletteand Wal-mart, is the market of choice for thelargest companies in America.

The NYSE is the first type of exchange (aswe referred to above), where much of thetrading is done face-to-face on a trading floor.

The tradin floor of the NYSE
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There are ways of doing this in an online environment such as online questionnaires, feedback forms, registration processesand web-statistics.

Many online customers are happy to fill out online surveys, questionnaires and registration forms as it is very convenient.

Form of feedback of Online or Offline Trading or Investing

The feedback page either asks specific questions of the user or invites open comment is another useful means of gatheringinformation about the customers.

Feedback can also be submitted via email, or a simple web-based form. Data entered into web-based forms gets stored into a database that enables the users to sort and summarize the information.

Benefits of Online or Offline Trading or Iinvesting

Some of the benefits of this kind of trading are it helps in saving ones money which greatly depends on the online brokeragefirm. Then there is instant online access which gives the consumer instant access to their account. A person can do this trade anytime. With this one controls his investments. But still there are some who prefer offline trading because while investing, there are experienced and professional brokerage

companies that handle their investments for them. . Any amateur investor while catering to decision making phase of investment, they are not exposed to any sort of challenge. Also, there is someone there to answer any questions that may cause concerns.

View of Offline or Offline Trading or Investing Needless to say with offline trading, mistakes are reduced. It is always advisable to hunt for the experienced and skilled person to give assistance to the consumer while taking any

investment decision.

Attributes of Online or Offline Trading or Investing


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You can avail the facility of zero brokerage or free of brokerage option in online trading on your trade, which is named asfreedom account

Also, customer can earn even when they don't trade.

They get interest on cash margin meaning that while waiting for their next trade or online investment, their unutilized cashdoes not lie idle. The investor earns interest on his unutilized cash margin. Apart from this, their max trade plan allows the freedom to trade without hassles throughout the day without having to worry

about ones cash margin. One gets exposure (on cash segment) up to as high as 20 times for intraday trades. Intraday reports and historical charting

empowers the trader to make right investment decisions and be an informed trader with the information available. R-(ace) basic, advanced, professional are some extra features of this trade. Online stock trading has become more popular over the past few years due to easy availability of internet.

Pros and Cons of Online or Offline Trading or Investing However, investing stocks through internet trading involves risks too. Hence, before investing in an online trading company, it is better that the trader does the investigations about the particular

company to trade with. The person should go through the terms and policies of the company and read the testimonials provided by other users. If any loop-hole regarding the online trading stocks crop up, then online trading consultant is always at your service.

Instances of Online or Offline or Trading

To become a successful trader, thorough investigation and better support from a renowned online trading company makes your goal achieved.

Then, one also has the option of investment open for business of the customers. In accordance to the underlying investment, Mutual Fund Investment has its specified goal during the launching time. There are debt funds, equity funds, gilt funds etc. and these are for fulfilling the various needs of the investor. The availability of these options makes them a good option.


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In order to keep the decorum of system, market trend, investment plan and different scheme are floated to the market within a certainfrequency.

Stock market index

The movements of the prices in a market or section of a market are captured in price indices called stock market indices , of whichthere are many, e.g., the S&P , the FTSE and the Euronext indices. Such indices are usually market capitalization (the total marketvalue of floating capital of the company) weighted, with the weights reflecting the contribution of the stock to the index. Theconstituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment.

Derivative instruments

Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Someexamples are exchange-traded funds (ETFs), stock index and stock options , equity swaps , single-stock futures , and stock indexfutures . These last two may be traded on futures exchanges (which are distinct from stock exchangestheir history traces back tocommodities futures exchanges), or traded over-the-counter . As all of these products are only derived from stocks, they are sometimesconsidered to be traded in a (hypothetical) derivatives market , rather than the (hypothetical) stock market.

Leveraged Strategies

Stock that a trader does not actually own may be traded using short selling ; margin buying may be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would berequired by outright purchase or sale.
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Short selling

In short selling, the trader borrows stock (usually from his brokerage which holds its clients' shares or its own shares on account to

lend to short sellers) then sells it on the market, hoping for the price to fall. The trader eventually buys back the stock, making moneyif the price fell in the meantime or losing money if it rose. Exiting a short position by buying back the stock is called "covering a short position." This strategy may also be used by unscrupulous traders to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most (butnot all) stock markets.

Margin buying

In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. Most industrialized countries haveregulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of

a certain percentage of those other stocks' value. In the United States, the margin requirements have been 50% for many years (that is,if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance margin below the $500). A margincall is made if the total value of the investor's account cannot support the loss of the trade. (Upon a decline in the value of themargined securities additional funds may be required to maintain the account's equity, and with or without notice the marginedsecurity or any others within the account may be sold by the brokerage to protect its loan position. The investor is responsible for anyshortfall following such forced sales.) Regulation of margin requirements (by the Federal Reserve ) was implemented after the Crash of 1929 . Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investmentrepresented by the stocks purchased. Other rules may include the prohibition of free-riding: putting in an order to buy stocks without

paying initially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-days areup) and using part of the proceeds to make the original payment (assuming that the value of the stocks has not declined in the interim).

What Causes Stock Prices To Change or Sensitivity?

Stock prices change every day as a result of market forces. By this we mean that share prices change because of supply and demand . If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell astock than buy it, there would be greater supply than demand, and the price would fall.
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Understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislikeanother stock. This comes down to figuring out what news is positive for a company and what news is negative. There are manyanswers to this problem and just about any investor you ask has their own ideas and strategies.

That being said, the principal theory is that the price movement of a stock indicates what investors feel a company is worth. Don'tequate a company's value with the stock price. The value of a company is its market capitalization , which is the stock price multiplied

by the number of shares outstanding . For example, a company that trades at $100 per share and has 1 million shares outstanding has alesser value than a company that trades at $50 that has 5 million shares outstanding ($100 x 1 million = $100 million while $50 x 5million = $250 million). To further complicate things, the price of a stock doesn't only reflect a company's current value, it alsoreflects the growth that investors expect in the future.

The most important factor that affects the value of a company is its earnings . Earnings are the profit a company makes, and in the longrun no company can survive without them. It makes sense when you think about it. If a company never makes money, it isn't going tostay in business. Public companies are required to report their earnings four times a year (once each quarter). Wall Street watches withrabid attention at these times, which are referred to as earnings seasons . The reason behind this is that analysts base their future valueof a company on their earnings projection. If a company's results surprise (are better than expected), the price jumps up. If acompany's results disappoint (are worse than expected), then the price will fall.

Of course, it's not just earnings that can change the sentiment towards a stock (which, in turn, changes its price). It would be a rather simple world if this were the case! During the dotcom bubble, for example, dozens of internet companies rose to have marketcapitalizations in the billions of dollars without ever making even the smallest profit. As we all know, these valuations did not hold,and most internet companies saw their values shrink to a fraction of their highs. Still, the fact that prices did move that muchdemonstrates that there are factors other than current earnings that influence stocks. Investors have developed literally hundreds of these variables, ratios and indicators. Some you may have already heard of, such as the price/earnings ratio , while others are extremelycomplicated and obscure with names like Chaikin oscillator or moving average convergence divergence .

So, why do stock prices change? The best answer is that nobody really knows for sure. Some believe that it isn't possible to predicthow stock prices will change, while others think that by drawing charts and looking at past price movements, you can determine whento buy and sell. The only thing we do know is that stocks are volatile and can change in price extremely rapidly.
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The important things to grasp about this subject are the following:

1. At the most fundamental level, supply and demand in the market determines stock price.2. Price times the number of shares outstanding (market capitalization) is the value of a company. Comparing just the share price of two companies is meaningless.

3. Theoretically, earnings are what affect investors' valuation of a company, but there are other indicators that investors use to predictstock price. Remember, it is investors' sentiments, attitudes and expectations that ultimately affect stock prices.

4. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory thatcan explain everything.

Buying Stocks

how do you actually go about buying stocks? Thankfully, you don't have to go down into the trading pit yelling and screaming your order. There are two main ways to purchase stock:

1. Using a Brokerage The most common method to buy stocks is to use a brokerage. Brokerages come in two different flavors. Full-service brokerages offer you (supposedly) expert advice and can manage your account; they also charge a lot. Discount brokerages offer little in the way of

personal attention but are much cheaper.

At one time, only the wealthy could afford a broker since only the expensive, full-service brokers were available. With the internetcame the explosion of online discount brokers. Thanks to them nearly anybody can now afford to invest in the market.
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2. DRIPs & DIPs Dividend reinvestment plans (DRIPs) and direct investment plans (DIPs) are plans by which individual companies, for a minimal cost,

allow shareholders to purchase stock directly from the company. Drips are a great way to invest small amounts of money at regular intervals.

3. Stock Prices: Income vs. GrowthThe price of an income stock tends to stay fairly flat. That is, from year to year, the price of the stock tends to remain about the sameunless profits (and therefore dividends) go up. People are getting their money each year and the business is not growing. This would

be the case for stock in a single restaurant that distributes all of its profits to the shareholders each year.

Let's say that the single restaurant decides, for several years, to save its profits, and eventually it opens a second restaurant. That is the behavior of a growth company. The value of the stock rises because, when the second restaurant opens, there is twice as muchequipment and twice as much profit being earned by the company. In a growth stock, the shareholders do not get a yearly dividend,

but they own a company whose value is increasing. Therefore, the shareholders can get more money when they sell their shares --someone buying the stock would see the increasing book value of the company (the value of the buildings, equipment, etc.) and theincreasing profit that the company is earning and, based on these factors, pay a higher price for the stock.

In a publicly traded company, all of the financial information about the company is public. The Securities and Exchange Commission (SEC) is in charge of collecting this information and making it available to investo Shareholders also use a number of other indicators to determine how much a stock is worth. One simple indicator is the price/earnings ratio. This is the price of the stock divided by the earnings per share. There are all sorts of indicators like these, as well as a great deal of other financial informationavailable on any stock. You can look up all of it on the Web in thousands of different places -- see the links at the end of this articlefor details.

Stock Averages and Brokersaverages like the S&P 500 or The Russell 2000. These are broad market averages designed to tell you how companies traded on thestock market are doing in general. For example, the Dow Jones Industrial Average is simply the average value of 30 large, industrialstocks. Big companies like General Motors, Goodyear, IBM and Exxon are the companies that make up this index. The S&P 500 isthe average value of 500 large companies. The Russel 2000 index averages the values of 2,000 smaller companies.
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Wall Street's bronze bull, by Arturo De Modica, located atthe northern tip of Bowling Green

What these averages tell you is the general health of stock prices as a whole. If the economy is "doing well," then the prices of stocksas a group tend to rise in what is referred to as a "bull market." If it is "doing poorly," prices as a group tend to fall in what is called a"bear market." The averages reveal these tendencies in the market as a whole.

There are three big stock exchanges in the India:

NSE National Stock Exchange BSE - Bombay Stock Exchange SEBI Security exchange board of India

A company "lists" its stock on an exchange. For example, the NSE has about 3,000 companies listed. According to the NSE :

Anyone who wants to buy or sell stock in any of these 3,000 or so companies goes to the New York Stock Exchange to do it.
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Of course, no one wants to fly to New York to buy or sell their shares. A person therefore calls a stock broker in a firm that isauthorized to trade at the exchange. There are dozens of such brokerage houses, including such familiar names as Merrill Lynch ,Charles Schwab and Morgan Stanley . When you call up a broker at one of these companies, he or she relays your trade to the floor of the appropriate exchange, and a representative of the company (or, more commonly, a computer representing the company) makes thetrade on your behalf. You pay the broker a commission (generally Rs.10 to Rs 100 per trade, depending on the broker) to provide thisservice to you. Today, you can also trade stock online -- see this page to learn more.

Stocks that are not listed on an exchange are sold Over The Counter (OTC). OTC stocks are generally in smaller, riskier companies.Usually, an OTC stock is stock in a company that does not meet the requirements of an exchange.

For lots more information on stock, the stock market and related topics, check out the links on the next page.

Investment strategies

One of the many things people always want to know about the stock market is, "How do I make money investing?" There are manydifferent approaches; two basic methods are classified as either fundamental analysis or technical analysis . Fundamental analysis refers to analyzing companies by their financial statements found in SEC Filings , business trends, general economic conditions, etc.Technical analysis studies price actions in markets through the use of charts and quantitative techniques to attempt to forecast pricetrends regardless of the company's financial prospects. One example of a technical strategy is the Trend following method, used byJohn W. Henry and Ed Seykota , which uses price patterns, utilizes strict money management and is also rooted in risk control anddiversification .

Additionally, many choose to invest via the index method . In this method, one holds a weighted or unweighted portfolio consisting of the entire stock market or some segment of the stock market (such as the S&P 500 or Wilshire 5000 ). The principal aim of thisstrategy is to maximize diversification, minimize taxes from too frequent trading, and ride the general trend of the stock market(which, in the U.S., has averaged nearly 10%/year, compounded annually, since World War II).

Taxation

According to each national or state legislation, a large array of fiscal obligations must be respected regarding capital gains , and taxesare charged by the state over the transactions, dividends and capital gains on the stock market, in particular in the stock exchanges .However, these fiscal obligations may vary from jurisdiction to jurisdiction because, among other reasons, it could be assumed that
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taxation is already incorporated into the stock price through the different taxes companies pay to the state, or that tax free stock marketoperations are useful to boost economic growth .

How to Read A Stock Table/Quote

Any financial paper has stock quotes that will look something like the image below:
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Columns 1 & 2: 52-Week High and Low - These are the highest and lowest prices at which a stock has traded over the previous 52weeks (one year). This typically does not include the previous day's trading.

Column 3: Company Name & Type of Stock - This column lists the name of the company. If there are no special symbols or letters


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following the name, it is common stock . Different symbols imply different classes of shares. For example, "pf" means the shares are preferred stock .

Column 4: Ticker Symbol - This is the unique alphabetic name which identifies the stock. If you watch financial TV, you have seenthe ticker tape move across the screen, quoting the latest prices alongside this symbol. If you are looking for stock quotes online, youalways search for a company by the ticker symbol. If you don't know what a particular company's ticker is you can search for it at:http://finance.yahoo.com/l .

Column 5: Dividend Per Share - This indicates the annual dividend payment per share. If this space is blank, the company does notcurrently pay out dividends.

Column 6: Dividend Yield - The percentage return on the dividend. Calculated as annual dividends per share divided by price per share.

Column 7: Price/Earnings Ratio - This is calculated by dividing the current stock price by earnings per share from the last four

quarters. For more detail on how to interpret this, see our P/E Ratio tutorial.

Column 8: Trading Volume - This figure shows the total number of shares traded for the day, listed in hundreds. To get the actualnumber traded, add "00" to the end of the number listed.
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Column 9 & 10: Day High and Low - This indicates the price range at which the stock has traded at throughout the day. In other words, these are the maximum and the minimum prices that people have paid for the stock.

Column 11: Close - The close is the last trading price recorded when the market closed on the day. If the closing price is up or downmore than 5% than the previous day's close, the entire listing for that stock is bold-faced. Keep in mind, you are not guaranteed to getthis price if you buy the stock the next day because the price is constantly changing (even after the exchange is closed for the day).The close is merely an indicator of past performance and except in extreme circumstances serves as a ballpark of what you shouldexpect to pay.

Column 12: Net Change - This is the dollar value change in the stock price from the previous day's closing price. When you hear about a stock being "up for the day," it means the net change was positive

Quotes on the Internet Nowadays, it's far more convenient for most to get stock quotes off the Internet. This method is superior because most sites updatethroughout the day and give you more information, news, charting, research, etc.

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Microsoft Performance Check for 52 weeks


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INDEX WATCH


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The Bulls, The Bears And The Farm

On Wall Street, the bulls and bears are in a constant struggle. If you haven't heard of these terms already, you undoubtedly will as you begin to invest.
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The BullsA bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, andstocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull marketscannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimisticand believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook".

The Bears A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investorsto pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling . Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bullmarket. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearishoutlook".

The Other Animals on the Farm - Chickens and PigsChickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securitiesor get out of the markets entirely. While it's true that you should never invest in something over which you lose sleep, you are alsoguaranteed never to see any return if you avoid the market completely and never take any risk,

Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies
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without doing their due diligence . They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, asit's often from their losses that the bulls and bears reap their profits.

What Type of Investor Will You Be?

There are plenty of different investment styles and strategies out there. Even though the bulls and bears are constantly at odds, theycan both make money with the changing cycles in the market. Even the chickens see some returns, though not a lot. The one loser in

this picture is t

stock market & mutual funds

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