STOCK TRADING

BY

KUSHAL WALIA AND SAHIB SINGH

INTRODUCTION

DEBT VS EQUITY

Debt = Bond and Loans

Equity = shares

Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way.

WHAT IS A STOCK?

stock is a share in the ownership of a company.

represents a claim on the company's assets and earnings.

As you acquire more stock, your ownership stake in the company becomes greater.

STOCK MARKET(1)

STOCK CERTIFICATE

PRIMARY MARKET

where securities are created via IPO

SECONDARY MARKET,

investors trade previously issued securities.

STOCK MARKET(2)

BULL MARKET

When everything in the economy is great

BEAR MARKET

When everything in the economy is bad. Recession,

unemployment and prices falling.

CHICKENS

Are afraid to lose anything. Invest very securely.

PIGS

High risk takers, want to make a lot in a short time.

TRADING(1)

ONLINE & OFFLINE TRADING

Doing stock trading with help of computer, Internet

connection and with demat account is called

Online Stock Trading.

Doing stock trading with the help of broker or

through phone is called Offline trading.

o DAY TRADERS, SWING TRADERS AND

INVESTORS

o Day traders exchange securities everyday.

o Swing Traders change securities every few weeks.

o Investors change securities after few years

TRADING(2)

METHODS OF BUYING/SELLING STOCKS

MARKET ORDER

The market order gets immediately executed at

the current available price.

LIMIT ORDER

The buying or selling price has to be mentioned

and when the stock price comes to that price

then you will execute your order with the

mentioned price.

INTRADAY & DELIVERY

TRADING

INTRADAY

When you buy and sell a

stock within the same

day,

Lower brokerage is

charged.

You receive margin

benefits on Intraday

Trading

DELIVERY

When you purchase shares and hold them overnight, then you take delivery of the shares

Most brokers charge a higher brokerage

You have to pay the full value of the shares and the shares get credited to your account.

IMPORTANT TERMS

OPEN

HIGH

LOW

CLOSE

BID

OFFER

VOLUME, BID

QUANTITY, OFFER

QUANTITY

NET CHANGE

STOCK QUOTE

PRICE OF A SHARE

IPO price decided by the company and merchant bank.

Supply and demand in the market determines stock price.

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.

Theoretically, earnings are what affect investors' valuation

of a company. Remember, it is investors' sentiments,

attitudes and expectations that ultimately affect stock

prices.

FUNDAMENTAL &

TECHNICAL ANALYSIS

FUNDAMENTAL

Fundamental analysis

is used for long-term

analysis and long-term

returns.

TECHNICAL

Technical analysis is

made for day traders

and short-term

traders.

STOCK MARKET INDEX

Index denotes the direction of the entire market. Index

consists of High market capitalization and High liquidity

shares.

HIGH MARKET CAPITALIZATION SHARES

HIGH LIQUIDITY SHARES

Shares in the market with high volumes.

TWO TYPES OF INDICES

NIFTY, listed with NSE.

SENSEX, listed with BSE

BSE INDEX: SENSEX

CALCULATED SINCE 1986

INITIALLY BASED ON TOTAL MARKET

CAPITALIZATION

CHANGED TO FREE FLOATING MARKET

CAPITALIZATION IN 2003

BASED ON 30 SENSEX STOCKS TRADED ON THE

BSE

BASE VALUE IS 100 (1978-79)

CALCULATED EVERY 15 SECONDS

HOW IS SENSEX

CALCULATED?

FORMULA FOR SENSEX = (SUM OF FREE FLOW

MARKET CAP OF 30 BENCHMARK STOCKS) *

INDEX FACTOR

WHERE,

INDEX FACTOR = 100/MCV (1978-79)

MCV = MARKET CAP VALUE &

100 = INDEX VALUE DURING 1978-79

EXAMPLE

Assume Sensex has only 2 stocks namely SBI and

RELIANCE. Total shares in SBI are 500 out of 200

are held by government and only 300 are available

for public trading. Reliance has 1000 shares out of

which 500 are held by promoters and 500 are

available for trading. Assume price of SBI stock is Rs

100 & Reliance is 200. Then Free Float Cap of these

two company =

=(300*100+500*200)

= 30,000+1,00,000

= 1,30,000

Assume market cap during the year 1978-79 was

25000

Then SENSEX = 1,30,000*100/25000

= 520

The methodology in the example is exactly followed to

calculate the SENSEX . Only difference being the

inclusion of 30 stocks.

NSE INDICES

S&P CNX Nifty 50 :Owned and managed by India

Index Services and Products (IISL)

S&P CNX Nifty 50: Base Period: 3/11/1995, base

value: 1000, base capital: INR 2.06 trillion.

CNX Nifty Junior

CNX 100 (= S&P CNX Nifty 50 + CNX Nifty Junior)

S&P CNX 500 (=CNX 100+ 400 top players across

72 industries)

CNX Midcap

HOW IS NIFTY

CALCULATED?

The National Stock Exchange ( NSE ) is associated

with Nifty.

The calculation of Nifty is same as we calculated

SENSEX . But with two key differences.

Base year is 1995 and base value is 1000

Nifty is calculation based on 50 stocks.

EVERYTHING ELSE IS SAME

BENEFITS OF STOCK

EXCHANGING TO THE

COMMUNITY

It assists the economy’s development by providing a

body of interested investors.

It encourages capital formation.

Uploads position of superior firms and assists them in

raising capital.

Government can undertake important projects,

raising funds via sale of its securities.

BENEFITS TO THE

COMPANY

A company whose share is quoted on the exchange

enjoys better reputation and credit

The market of such a company is naturally widened.

The market price of securities is likely to be higher

than its earning, dividends and property value. This

raises the bargaining power of the company in event

of a merger or a takeover.

THANK YOU