Stock/Share Market - Meaning ,Concept - End to End Understanding

Stock/Share Means?

When a person owns shares in a company, the individual is called a shareholder. The term Stock, Shares & Equity are used in modern financial language. 

Stock Market: Consist of exchanges where investors can buy and sell the individual shares of the company.

Benefits:

1. Claim on Assets 

2. Dividends & Capital Gains.

Risks:

1. Loss of Capital

Modern Stock Trading:

In the past, shares were represented on a piece of paper as a certificate. When a person wanted to purchase shares, they needed to physically visit the office of a broker and make the transaction there, where they would receive the actual certificate. 

Today's Brokers keep documents electronically. Here investors need only click through online trading platforms to purchase shares. 

What affects share prices? 

There are many factors that affect share prices. These may include the global economy, sector performance, government policies, natural disasters, and other factors. 

Below financial ratios are used to evaluate stocks :

- Revenue Growth

- Earnings Growth

How Stocks are Traded - Exchanges & OTC:  

BSE

Most stocks are traded on exchanges such National Stock Exchange (NSE) & Bombay Stock Exchange (BSE) etc. in India, New York Stock Exchange (NYSE), or NASDAQ in foreign Markets. 

NSE

Stock exchanges are regulated by government agencies such as Securities and Exchange Board of India (SEBI) in India. 

SEBI

OTC- Over-the-Counter - where buyers & sellers of stocks commonly trade through the dealer. 

IPO: Initial public Offering - It is the process of Private companies convert into Public by the sale of their stock to the general public.

Stock Market Players :

1. Banks - All Private & Public Sectors Banks. 

2. Stock Brokers - Zerodha, Upstox, etc. - 2 Types - Discount Brokers & Full-Service Brokers 

3. Investors -  Retailers, Normal Person, etc. 

4. Mutual Funds - Fund house

Stock Market Indexes :

The overall performance of the stock market is usually tracked and reflected in the performance of various stock market indexes. Stock indexes are composed of a selection of stocks that is designed to reflect how stocks are performing overall. Stock market indexes themselves are traded in the form of Options & Futures contracts.

For e.g. - NIFTY 50, BANK NIFTY,  SENSEX in India, Dow Jones in the United States. etc. 

Bull & Bear Markets  & Short Selling : 

Bull: The price of stocks is generally rising.  

Bear: The price of stocks is generally down.  

Short Selling: This is the practice of borrowing stock that the investor does not hold from a brokerage firm that does own shares of the stocks.

Analyzing Stocks :

1) Market Cap - Market Capitalization 

2) EPS  - Earning Per Share - Reflects company profits as dividend 

3) Financial Ratios  - 

Price to Earning (P/E) Ratio (Formula's ) -  Higher PE ratio indicates a higher price. 

Debt to Equity Ratio - Debt or Debt-free

Return on Equity (ROE) Ratio - Indicate Company Growth - Shown the company Net Income.

Profit Margin - Operating Profit Margin & Net Profit Margin. 

Two basic Approaches to Stock Market Investing : 

1) Value Investing -  Well Established Companies  i.e. Reliance  

2) Growth Investing - Small Scale or Mid Cap Company.

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Hope you understand the Share Market concept. Enjoy your Wealth Creation

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