Stock Market Basic knowledge What is a stock market ?
A stock market, or equity market, is a private or public market for the trading of company stocks and derivatives of company stock at an agreed price, these are securities listed on a stock exchange as well as those only traded privately.
What is equity ?
Having equity share of a company signifies ownership in that company. if you have 1,000 shares of a company which has totally issued 10 lak shares then your ownership in that company is .01% . You can calculate it like this, Number of share you have divide by number of share issued by company then multiply by 100.
How much risk involve in equity market ?
Equity is most rewarded investment but it has inherent risk of capital loss. There is some kind of risk attached in equity investing :-
1. Company specific risk :- Investing in a company which dose not have good business prospects or its own and run by promoters with a questionable reputation or in a sector which is currently in downward trend.
2. Sector specific risk :- Investing in good fundamentally strong company in wrong time means in downward trend.
3. Global risk :- Increase in global oil price which can be reason of fall in the stock market, global market sentiment, adverse change in exchange which may be not good for export oriented companies.
Political upheaval, economic downtime can also be reason for fall in equity price.
What Is Support ?
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support. Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level.
Where Is Support Established ?
Support levels are usually below the current price, but it is not uncommon for a security to trade at or near support. Technical analysis is not an exact science and it is sometimes difficult to set exact support levels. In addition, price movements can be volatile and dip below support briefly. Sometimes it does not seem logical to consider a support level broken if the price closes 1/8 below the established support level. For this reason, some traders and investors establish support zones.
What Is Resistance ?
Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level.
Where Is Resistance Established ?
Resistance levels are usually above the current price, but it is not uncommon for a security to trade at or near resistance. In addition, price movements can be volatile and rise above resistance briefly. Sometimes it does not seem logical to consider a resistance level broken if the price closes 1/8 above the established resistance level. For this reason, some traders and investors establish resistance zones.
How to select share or equity for investment ?
Investing in stock market is not a gambling, but if you treat stock market as a gambling place then you may loose your all time earning, your hopes, and your future too in it. So please do proper planing before investing in equity market. You can select you stock to invest in two ways :-
1. Fundamental Analysis : - Deep study and analysis of the prospective company whose share you want to buy. The industry it operates in and the overall market scenario. Study can be done by reading and assessing the company's annual reports., research reports published by equity research houses, research analysis published my media, discussion with company's management or the experienced investors.
2. Technical Analysis : - Studying price movement of a stock over in extended period of time in the past to judge trend of the future movement of stock price. Study can be also done by using a software program which can generates stock price charts indicating upward, downward and sideways movement of stock price over the stipulated time period.
How can I earn from equity Or Share ?
By purchasing share of any company ( Investing in equity market ) you can earn money in two ways :-->
1. Income from capital appreciation :- If you are invested in good company's ( like SBI, PFC and Power Grid ) for short term or long term of long term, with the growth of company its share price will increase in value, it will increase the value of your holding in a company.
Example: - If you have 1,000 share of a company at Rs. 102 and if company shows good business and have good valuable order book for execution. The share price will increase of that company to show good perforations, If the share price of that company rise to 150 then your will became 1,50,000 ( 1,000 * 150 per share)
2. Income from Divined : - The profit made by a company in a given financial year are some time distributed to its share holder is called divined. It depend on how many share you hold of that company.
Example: - If you have 1,000 share of any company and face value of each share is Rs. 10. Now if company deiced to give 50% dividend to its shareholders. It means you will get Rs. 5 per share ( 50% of Rs. 10 ) Total divined you will receive is Rs. 5,000 ( 1,000 share * Rs. 5 per share ).
