A Journey into Stock Markets

1 By Trilok H G

What is Stock?
How trading happens?
How to trade in stocks?
Kinds of Trades
Basic Terms and terminologies



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Technical indicators
Strategies
Futures and options
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Its a means to own a company.
It is a kind of security.
(The definition of Securities as per the Securities
Contracts Regulation Act (SCRA), 1956, includes
instruments such as shares, bonds, scrips, stocks or
other marketable securities of similar nature in or
of any incorporate company or body corporate,
government securities, derivatives of securities,
units of collective investment scheme, interest and
rights in securities, security receipt or any other
instruments so declared by the Central
Government.)

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We need to have DP(DEPOSITORY
PARTICIPANT) account.

We need to have a Trading account.

And of course money
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Stock Exchange
Ex : NSE,BSE
People using
terminal
provided by their
brokers
Ones which are listed in that exchange

IPO
Secondary market

ADR, GDR in foreign markets


More of IPO later
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Intra-day Trading
Delivery based Trading
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Buying and Selling on the same day


Brokerage will be different for intra-day and
delivery based trading, intra-day being lesser
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Buying and Selling are on different days

Brokerage will be higher than intra-day

Their will be minimum delivery charges
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Ex :
You buy the share on Monday.
It will be delivered to you on Wednesdays
settlement period (T + 2) normally.
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Selling something which you dont have.
Ex: Lets consider a company RIL.
Its priced at Rs 2,500/- before opening. You
know its going to fall that day because of some
reason. But you dont have any shares with
you of RIL.
But still you can sell the shares, this is called as
short selling.
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Contd

Assume you sold 10 RIL shares in morning at
Rs 2,500/-. By evening as you had thought, it had
Fallen down to Rs 2,400/-. Now you buy back
Those 10 shares what you had sold.
So the difference in amount, 2,500 2,400 = 100
100 * 10 = 1000, is yours. This process of buying
back is called short covering.
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You will become a defaulter.

Lets understand this with an Example.
Assume you short sold on Monday, as you
havent short covered it, you need to deliver it
on Wednesday(T + 2). But you dont have the
shares to deliver. So NSE or BSE will buy the
shares on behalf of you in auction market, and
deliver it to the buyer in (T + 3 days). In
auction market max price is 10% higher than in
normal market.
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Assume Ram bought on Monday 100 shares of
RIL at Rs 2,500/- , on response to some good
news it rose high on Tuesday to say Rs 2,600/-.

So Ram is in a whooping profit of (100 * 100)
Rs 10,000/- in a day.

Ram plans to sell it.
Will he get that profit for sure?

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Monday : Ram bought stocks
Tuesday : Ram sold stocks
Wednesday: Stocks wont get delivered to him,
as they were short sold.
Thursday: Ram needs to deliver the stocks, as he
has sold on Tuesday, But he dont have
Them now, as they were short sold,
So he becomes a defaulter.
Friday : Ram gets the delivery of short sold stocks
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DAY PRICE
Monday 2500
Tuesday 2600
Wednesday 2620
Thursday 2670
Friday 2550
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Assume you sold 10 RIL shares in morning at Rs 2,500/- and
by evening as you had thought, it had Fallen down to Rs
2,400/-
Now you buy back those 10 shares what you had sold.
So the difference in amount per share 2,500 2,400 = 100
100 * 10 = 1000, Profit is yours.
This process of buying back is called Short covering.


Ram actually ended up in loss!!!
( I was a victim of such a trade when I executed my 2
nd
trade 2
years back )

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Fundamental Analysis



Technical Analysis
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Analyzing a stock based on the fundaments of
the country, the sector, and the company
individually.

It includes going through balance sheet and
profit-loss statement of the individual
company and checking various ratios.
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EPS : PAT Dividend/ No of shares


PE : Present share Price / EPS


P/BV Present share price / Book value
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Example : Enron, Satyam

IT industry off recent
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Forecasting the future direction of prices
through the study of past market data,
primarily price and volume. In its purest form,
technical analysis considers only the actual
price and volume behavior of the market or
instrument.
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Support : Where one buys



Resistance : Where one sells



Some Examples
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Face Value

Premium
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Read about the promoter's group.

Understand their business, and compare them
With the companies listed already in market

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Market Cap

Dividend




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Buy Back

Bonus

Split

Record Date
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What is NIFTY, SENSEX


How are they Calculated?
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Execute couple of paper trades before you
actually execute the real trade, we have many
simulators and games available now
Always follow strict entry and exit points
Always execute a limit order
Never buy and sell for full amount in one go,
Spread it across a range, it will give much
better bottoms and tops
Never average a losing trade



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STOCK EXCHANGES IN INDIA
BSE NSE
BSE SENSEX 30
Started on 01 January, 1986
Value-weighted index
Consists of the 30 largest
and most actively traded stocks
Name of company Weightage
RIL 13.10
Infosys Tech 9.37
L&T 8.44
ICICI Bank 7.67
HDFC 5.71
ITC 5.46
Bharti Airtel 4.87
HDFC Bank 4.64
SBI 4.13
ONGC 3.67
BHEL 3.26
HUL 2.50
TCS 2.25
Tata Steel 1.88
Tata Power 1.78
Name of Company Weightage
Maruti Suzuki 1.75
Sterlite Industries 1.71
Grasim Industries 1.69
NTPC 1.69
RCOM 1.61
Jaiprakash Associates 1.60
M&M 1.56
Wipro 1.53
Reliance Infra 1.49
DLF 1.41
Hero Honda 1.25
Tata Motors 1.22
Hindalco 1.09
Sunpharma 0.82
ACC 0.75
NSE NIFTY 50


The 50 stocks that were most favored by
institutional investors in the 1960s and 1970s.
Name of company Weightage
RIL 11.23
Infosys Tech 8.02
L&T 7.23
ICICI Bank 6.58
HDFC 4.89
ITC 4.67
Bharti Airtel 4.17
HDFC Bank 3.98
SBI 3.53
ONGC 3.15
BHEL 2.87
HUL 2.14
TCS 1.93
Tata Steel 1.61
Jindal Steel 1.58
Tata Power 1.53
Name of Company Weightage
Maruti Suzuki 1.50
Axis Bank 1.48
Sterlite Industries 1.46
Grasim Industries 1.45
NTPC 1.45
RCOM 1.38
M&M 1.34
Wipro 1.31
Reliance Infra 1.27
DLF 1.21
Unitech 1.19
GAIL 1.19
Hero Honda 1.07
Tata Motors 1.04
Idea Cellular 1.01
Cipla 1.00
Name of
company
Weightage
Hindalco 0.93
Cairn 0.90
Rel Capital 0.79
SAIL 0.75
PNB 0.71
Sun Pharma 0.70
ACC 0.64
Ambuja Cement 0.64
Siemens 0.61
ABB 0.61
BPCL 0.52
Name of
Company
Weightage
HCL Techno 0.50
Power Grid 0.49
Reliance Pow 0.46
Suzlon Energy 0.44
Ranbaxy Lab 0.39
Tata Comm 0.27
NALCO 0.22
FACTORS AFFECTING STOCK
MARKET
Economic Factors
Market trends & Rumours
Global Market indicators
Govt Policies and Regulations
Company wide factors
Control Mechanism
Circuit is the price limit or range, outside which the
stock price can't go.
For example, let's say closing price of X stock
yesterday was 100 Rs. The applicable circuit limit for
X is 5%. In this circumstances, the price of X can't go
above 105 (5% above previous close) and below 95
(5% below previous close).
Things to be avoided while trading
& investing
Never risk more than 10% of your trading capital in a
single trade.

Always use stop loss orders.( Here you should know
your loss you can give in a situation where the trade
starts going against you.)

Never do overtrading.

Don't enter a trade if you are unsure of the trend.


When in doubt, get out, and don't get in when in
doubt.

Only trade active stocks

Distribute your risks equally among different markets.

Extra money from successful trades should be placed in
a separate account.

Never average a loss.

Things to be avoided while
trading & investing
Never get out of the market because you have lost
patience, or get in because you are anxiously waiting.

Avoid taking small profits and large losses.

Avoid getting in and out of the market too soon.

Be willing to make money from both sides of the
market.

Never buy or sell just because the price is low or high.

Things to be avoided while
trading & investing
Never change your position without a good
reason.

Don't try to guess tops or bottoms.

Don't follow a blind man's advice.

When you lose don't blame it on luck.
Things to be avoided while
trading & investing
1. Stock
2. Broker
3. Stop loss
4. Support
5. resistance
6. Intraday
7. Delivery
8. Exchange
9. Circuit
10.Trader
11.Investor



Q & A

45 By Trilok H G