How to trade in share market?
In simple words share market is the place where shares are brought & sold. It’s the place where share or derivatives of the companies are traded at the agreed price.
In the earlier days, stockbrokers 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 ups & downs of the Indian Economy and finance is measured.
The trading scenario in India then underwent huge change 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.
Classification of Share market:-
Primary Market:-
It is the place where shares are issued for the first time. When a company is getting listed for the first time at the stock exchange and issuing shares – this process is undertaken at the primary market. That means the process of the Initial Public Offering or IPO and the debentures are controlled at the primary stock market.
Example:-
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 market:-
In the derivative market trading is done through future contract & option contract. In both these types the stocks or shares are bought and sold in lot. For trading in derivative market one has to buy either the future contract or the option contract. In a future contract you are bound to close the deal within a specific time and at a fixed rate. While in case of option contract you can also choose to ignore the contract.
In India, the Secondary and Primary Markets are governed by the Security and Exchange Board of India (SEBI). SEBI is the regulatory body of stock markets establish in 1988.
The basic objectives of the Board were identified as:-
In order to answer the above question we must first know what the share market is all about?
In simple words share market is the place where shares are brought & sold. It’s the place where share or derivatives of the companies are traded at the agreed price.
Stock Market Trading history of India
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 ups & downs of the Indian Economy and finance is measured.
The trading scenario in India then underwent huge change 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.
Stock market milestones
- 1875 BSE established as 'the native Share and Stock Brokers Association'
- 1956 BSE became the first stock exchange to be recognized under the Securities Contract Act.
- 1993 NSE recognized as a stock exchange.
- 2000 Commencement of Internet trading at NSE.
- 2000 NSE commences derivatives trading (Index futures)
- 2001 BSE commences derivatives trading
The Bombay stock exchange or BSE is a conventional stock exchange with a trading floor and operating through mostly offline trades, the National Stock Exchange or NSE is a completely online stock exchange and the first of its kind in the country. The trading is carried out at the National Stock Exchange through the electronic limit order book or the LOB. With the immense popularity of the process and online trading facility other exchanges started to take up the online route including the BSE where you can trade online as well. But the BSE is still having the offline trading facility that is carried out at the trading floor of the exchange at its Dalal Street facility
- Primary market
- Secondary market
Primary Market:-
It is the place where shares are issued for the first time. When a company is getting listed for the first time at the stock exchange and issuing shares – this process is undertaken at the primary market. That means the process of the Initial Public Offering or IPO and the debentures are controlled at the primary stock market.
Example:-
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 market:-
It is the place where existing stocks are bought and sold by the investors through the brokers. It is the secondary market that controls the price of the shares (stocks). Generally when we speak about investing or trading at the stock market we mean trading at the secondary stock market. It is the secondary market where we can invest and trade in the stocks to get the profit from our stock market investment.
Example:-
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.
Apart from above stated to classification share market is also classified based on the type of instrument that is being traded at the market.
Example:-
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.
Apart from above stated to classification share market is also classified based on the type of instrument that is being traded at the market.
- Equity market
- Derivative Market
Equity Market:-
In this type of trading the trader or buyers of the shares book a buying order with a bid price and the order is executed through the broker at a negotiated ask price offered by the sellers at the market. In this type of trading the buyer pays the entire amount of the value of the stock (share) that is determined by multiplying the number stocks with the current price of the stock(share). Once the buyer pays the entire amount along with the brokerage and taxes of the transaction the stocks are deposited to the DP account of the buyer.
Derivative Market:-
In the derivative market trading is done through future contract & option contract. In both these types the stocks or shares are bought and sold in lot. For trading in derivative market one has to buy either the future contract or the option contract. In a future contract you are bound to close the deal within a specific time and at a fixed rate. While in case of option contract you can also choose to ignore the contract.
In India, the Secondary and Primary Markets are governed by the Security and Exchange Board of India (SEBI). SEBI is the regulatory body of stock markets establish in 1988.
The basic objectives of the Board were identified as:-
· To protect the interests of investors in securities.
· To promote the development of Securities Market.
· To regulate the Securities Market.
Online Stock Exchange:-
Online stock exchange is the place where share are brought & sold electronically. There is no physical location for the exchange at all. National Association of Securities Dealers Automated Quotations System (NASDAQ), an American stock market, is the first electronic and online stock exchange founded in 1971 by National Association of Securities Dealer. The process of the trading is in online stock exchanges is the same as the secondary market. In case of online stock exchanges the bids are given in the form of instructions from the buyers and seller through an electronic medium, which is internet. The advantage of the online stock exchange is that, one can trade from any part of the country and even from abroad in a convenient way. As there is no middle and or broker directly involved in the process, the process is much more transparent and trustworthy.
Risk associated with trading:-
· Market risk
· Industry risk
· Regulatory risk
· Business risk
Market Risk:-
It means the risk of the securities value going down. You might have noticed that a particular company is not doing well even then it’s share value is going up. This is because the stock market value is collectively going up & vice-versa. This is because of the factors like inflation, rising interest rates, political instability which effect the whole market.
Industry Risk:-
It is risk that affects all companies in a certain industry. For example, internet and other technology industries are usually viewed as high in risk because the industry is changing so quickly and unpredictably.
Regulatory Risk:-
It refers to the risk that the government will pass new laws or implement new regulations, which will dramatically affect a business.
Business Risk:-
These are the risk related with individual organisation. It refers to the uncertainty regarding the organizations ability to perform business or provide service Products, strategies, management, labour force, market share, etc., which are among the key factors investors consider in evaluating the value of a specific company.
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