Frequently Asked Questions (FAQs)

A stock market (also called as share market) is the aggregation of buyers and sellers, where seller can sell their shares or stock and buyer can buy it. Or in other words, we can say that it is a market place where shares of pubic listed companies are traded.

Stock exchange is a body which act as a mediator and facilitates buying and selling of shares for execution of their respective orders. Some of the well known exchanges are BSE, NSE, NYSE, NASDAQ etc. For trading any stocks on exchange the company must first get listed on that exchange.

Shares are the smallest unit of ownership in any enterprise that provides proportional distribution of any profit (if declared) in the form of Dividend.The two main types of shares are common shares and preferred shares. Preferred shareholders have a bigger claim on company’s earnings and assets. Also, they get preference over common shareholders when dividends are distributed. Generally, dividend for preference shareholders is more than that for the common shareholders. Earlier, shares were issued in physical format. However, now physical paper stock certificates have been replaced with electronic recording of stock shares, just as mutual fund shares are recorded electronically.

Companies issue shares to meet their financial requirements for expansion of business and other purposes. By issuing the shares company gets funds from public and other financial institutions. In return of investment, shareholder gets ownership of the company in the form of share.

People buy shares because they are looking for better returns on their investments as compared to traditional products like bank FDs, PPF etc. They believe in growth prospect of a company in which they invest.

You can trade in following ways in the market:
Intraday trading: In intraday trading, the position must be squared-off on the same day on which it’s created.
Positional Trading/Investing: In positional trading/investment, the trader/investor carry the trade overnight. He can hold the trade/investment for a couple of days or stay invested for long period.

Volume refers to the number of shares or contracts traded in any security in that particular period or time frame.

A Dividend is a pay-out to the shareholder from the profit of the company. When a company earns a profit then it will pay a proportion of that as a dividend to shareholders. Distribution of dividends will be in a various form like cash or in form of shares (if a company has a dividends reinvestment plan).

A dividend is a reward given to shareholders for owning stock in the corporation. It is key to attract people to invest in their company or buy a stock.

In early days of stock markets, dividends were the primary method of calculating the return value to shareholders. Price appreciation was considered more of a bonus, as people bought stocks mainly because of their sizable dividends. In more recent times, dividends have come back into vogue. For the past five years, dividend stocks have easily outpaced the price performance of non-dividend stocks.

Security market is where securities are issued and traded. It is the market for different types of securities namely: Debt, Equity and Derivatives.
Debt market is divided into three parts:
• Government securities market
• Money market
• Corporate Debt market
Equity market is divided into two parts:
• Primary market
• Secondary market
Derivatives market is also divided into two parts:
• Options market
• Futures market

• For investors in cash market to hedge their positions
• Enhance price discovery process
• Increases volume of transactions
• Lower transaction costs
• Increased liquidity for investors and growth of fund flow from savings
• Leads to faster execution of trades and arbitrage and hedge against risk

A Stock market index is a measure of relative value of group of stock or a numerical representation of the value of group of stock. Stock market indices are used to measure the general movement of stock market. Indices are the plural form of index.
The major indices in India:
• BSE Sensex - it reflects movements of 30 sensitive shares from specified and non-specified groups
• NIFTY - it reflects movements of 50 sensitive shares from specified and non-specified groups

Bombay Stock Exchange (BSE Sensex) was started in 1986 whereas National Stock Exchange (NSE Nifty) started in 1995. The base year for Sensex is 1978-79 and base value is 100 whereas the base year for nifty is 1994 and base value is 1000.
• BSE consists of 30 scrips whereas NSE consists of 50 scrips
• BSE is screen based trading whereas NSE is national, computerized exchange
• BSE has adopted both quote driven system and order driven system whereas NSE has opted for an order driven system

Equity market consists of primary market and secondary market.
• Primary Market – It is also called new issues market as securities are issued to public for the very first time. In this market, new issues are made in following four ways:
o Public issue
o Rights issue
o Private placements
o Preferential allotment
• Secondary Market – All the issued securities are traded in the secondary market. Stock exchanges are an important part of capital market.

Money market is the market where short-term instruments of credit with a maturity period of less than one year are traded. Such instruments are known as near money. The borrowers of money market are traders, government, speculators etc. Lenders in this market are commercial banks, central bank, financial institutions and insurance companies etc.

Equity share represents the net-asset value backing up each share of the company’s stock. An equity share, commonly referred to as ordinary share also represents the form of fractional or part ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture.

The two basic issues in equity trading are:
• Buy Orders
• Sell Orders

A call option gives right to the holder but not an obligation to purchase the share at a specified price and at a specified date in future.

The charges that are payable while purchasing a stock are
• Cost of the stock
• Brokerage
• Transaction Charges
• Stamp duty
• SEBI Charges

• It is important to spend time in researching and learning about trading, even when a broker is handling your trading account. It requires knowledge, discipline and time.
• Ready to lose money is to take risk. If you are not ready for taking risks, then equity trading is not suitable for you
• Always trade with Stop Loss (SL)
• If you are running into heavy losses or the market is not performing as expected than cut losses and stop for the day
• Don’t be foolish to turn profits into losses, consider selling some of your stocks to a level & adopt the trailing stop loss strategy to reduce your losses.

Options trading is a contract between the seller and buyer to buy or sell one or more lot of underlying assets at a fixed price on or before the date of expiry of the contract. The contract provides buyer the right, but not the obligation, to buy (in case of call options) or sell (in case of put options) in future. Buyer will have to pay premium to avail the privilege in options contracts.

Derivatives are a specialized contract for buying or selling the underlying assets of a particular period of time in the future at a pre-defined price.

• Options are derivatives which means their values are derived from the value of an underlying investment
• Trading in options take place in lots
• Option trade is defined by 2 instruments Call and Put
• Option trading can limit an investor’s risk; it offers a known risk to buyers as any option buyer cannot lose money which is more than the price of the option
• Regular equities can be held for indefinite time while options have expiry date
• Like regular equities, option does not have physical certificates
• Owning an option does not mean right to ownership of any share or dividends of a company unless the option is exercised

Equity analysts perform research and analyse financial data & trends for a company. Equity analyst writes reports on company finances and assign them financial ratings. Apart from this they also help companies to overcome financial crisis by giving them plan to get out of debt.

Cash equity is the total amount of cash or net worth of all the cash which could be gained from the investments and securities mentioned in the portfolio. To know whether your current mix of investment is working, cash equity monitoring is a better way to know this and it also helps to determine what to hold and what to sell

Short selling is a process of selling a security that is not owned by the seller, or that the seller has borrowed to generate the profit from falling stock price. In this technique, trader sell them at the market price, and then purchases them at the lower price to return them to the original lender and thus generates the profit from the market.

Index Futures are future contracts created by keeping Index as an underlying asset. For example, Nifty futures is created by keeping Nifty as an underlying asset.

Commodity future trading covers the buying and selling in large range of primary economic sector rather than manufactured products like oil & gas, metals such as gold, silver & copper and soft commodities like cocoa, coffee, wheat and sugar. Commodity future contracts are the oldest way to hedge the commodity prices.

The SENSEX (or SENSitve indEX) was introduced by Bombay Stock Exchange on January 1, 1986. It is one of the prominent stock market indices in India. The Sensex is designed to reflect overall market sentiments. It comprises of 30 stocks. These are large, well-established and financially sound companies from main sectors.
Sensex is calculated by using the Free-float Market Capitalization method. In this method, the index reflects free-float market value of the 30 constituent stocks relative to a base period.

A short position involves selling futures contracts or selling of a cash commodity without offsetting futures transaction. (A cash commodity is an actual, physical commodity someone is buying or selling, such as corn or soybeans, also referred to as actuals.) A long position involves buying futures contracts or owning the cash commodity.