Stock market

              STOCK MARKET 

 

 

What is a stock market?

• A stock market or equity market is a market for the

trading of company stock (shares) and derivatives at

an agreed price.

 

 

What is a share/stock/equity?

• Shares represent a fraction of ownership

in a business.

The common feature of all these is equity

participation. Different classes of shares have different

voting rights.

• Ownership of shares is documented by a legal

document that specifies the amount of shares owned

by the shareholder, and other specifics of the

shares, such as the par value or the class of the shares

(if any).

•These days these stock certificates have been

dematerialized. (No physical document!)

 

                                           Trading 

 

• The shares of a company are in general be transferrable

from one shareholder to another . This leads to buying

and selling of shares termed as trading.

•Investors usually buy and sell shares on the exchanges

through a stock brokers registered with the exchange.

• A company may list its shares on an exchange by

meeting and maintaining the listing requirements of a

particular stock exchange.

 

Share price determination 

•At any given moment, the price is strictly a result of

supply and demand. The supply is the number of

shares offered for sale at any one moment. The

demand is the number of shares investors wish to buy

at exactly that same time.

• Actual trades are based on an auction market model

where a potential buyer bids a specific price for a stock

and a potential seller asks a specific price for the stock.

When the bid and ask prices match, a sale takes place.

Through a stock broker: They arrange the transfer of stock

from a seller to a buyer. Both the buyer and the seller of the

share pay commission known as brokerage to the broker.

• Directly from the company:

If at least one share is owned, most companies will allow

the purchase of shares directly from the company

through their investor relations departments.

A direct public offering is an initial public

offering (IPO) in which the stock is purchased directly

from the company, usually without the aid of brokers.

When to invest in a particular stock?

Fundamental analysis refers to analyzing companies

by their financial statements found in SEC

Filings, business trends, general economic conditions

and the growth prospects of company's market

segment. A few parameters which are looked upon

include Price to Earnings (PE) Ratio, Price to Book

Value ratio, Equity to Debt ratio.

 

 

 

                           TECHNICAL ANALYSIS

 

  

Technical analysis studies price actions in markets

through the use of charts and quantitative techniques

to attempt to forecast price trends regardless of the

company's financial prospects. A few examples include

Trend lines, Bollinger Bands, Oscillators etc.

When to invest in a particular stock?

Fundamental analysis refers to analyzing companies

by their financial statements found in SEC

Filings, business trends, general economic conditions

and the growth prospects of company's market

segment. A few parameters which are looked upon

include Price to Earnings (PE) Ratio, Price to Book

Value ratio, Equity to Debt ratio.

• Technical analysis studies price actions in markets

through the use of charts and quantitative techniques

to attempt to forecast price trends regardless of the

company's financial prospects. A few examples include

Trend lines, Bollinger Bands, Oscillators etc.

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                                      Fundamental Analysis 

P/E Ratio= Pricepershare /AnnualEarningspershare

P/BRatio= MarketCapitalizaion/Tangibleassets-liabilities

 

Importance and role of the stock markets

•Raising capital for businesses

• Government capital-raising for development projects

• Mobilizing savings for investment

• Facilitating company growth through acquisitions

• Creating investment opportunities for small investors

• Barometer of the economy

 

                    Stock markets and the financial risk

Sometimes the market seems to react irrationally to economic or financial news. This may' temporarily move financial prices away from their long term aggregate price 'trends'. (Positive or up trends are referred to as bull markets; negative or down trendsare referred to as bear markets). Over-reactions may Occur--so that excessive optimism may drive prices unduly high or excessive pessimism may drive prices unduly low.

                                          Stock Market Index 

The movements of the prices in a market or section of

a market are captured in price indices called stock

market indices. Such indices are usually market

capitalization weighted, with the weights reflecting

the contribution of the stock to the index. Examples of

index include Sensex, Nifty, DJIA, S&Pgoo, Nikkei etc.

• The constituents of the index are reviewed frequently

to include/exclude stocks in order to reflect the

changing business environment.