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Basic thing you should know before entering the stock market





Q1. What is the stock market?

Answer: In a layman term, Stock market is just similar to any Grocery market. The only difference is: In the Grocery market, you purchase and sell grocery items while on the stock market you transact on equities.





Q2. Who regulates the stock market?

Answer: Stock markets are regulated by the nation’s various stock exchanges. Further, these stock exchanges are regulated and monitored by a separate regulatory authority. Like in the USA, the regulatory authority is SEC (Securities and Exchange Commission).





Q3. What are the instruments that are traded on stock exchanges?

Answer: Generally, on most of the stock exchanges the following financial instruments are traded:
•    Equities,
•    Commodities, and
•    Derivatives
·         Options
·         Futures
In some stock exchanges, we can also invest in mutual fund, bonds, and debentures.





Q4. How can the investor enter the stock market?

Answer: Entering the stock market is an easy process if you are being guided by right people. Entering the stock is possible only through the registered stock brokers. Stockbrokers assist an individual in opening a De-mat account, trading account and Equity and commodity cash account. These accounts are mandatory before you enter the share market. 


After successful completion of an account opening procedure, a user will obtain their unique client id and password through their registered broker. With the help of this client id and password, the user will be able to transact on the various financial instruments (as listed above Q3.) on the stock market. For each successful transaction, a broker will charge their brokerage commission along with the other applicable government taxes.






Q5. What is a stock market index?


Answer: Stock market index is just like a measure that shows how the market is performing. Some of the famous indexes for various exchanges are listed below: 

Fig.1: Market Index







Q6. Let’s see the Myths and Facts about the stock market.

Answer:


Fig.2: Myths And Facts







Q7. How Does settlement transaction take place?

Answer: Settlement of transaction generally takes place during the settlement period. Generally, for an intraday transaction (i.e. Buy and sell on the same day), the settlement takes place on the same day. However, for an interday transaction (i.e. buy and sell on a different day), the settlement takes place as per the settlement period determined by the exchanges. In some exchanges, it is T+1 (i.e. transaction day+ 1 day) and in some exchanges, it is T+2 day.





Q9. What moves the Stock?

Answer: Stock generally follows the demand and supply rules and move accordingly. Sometimes, the reaction of buyer and seller towards the market news and event also causes the stocks to move.

Fig.3: Stock movement










Q10. Some of the important market terminologies


  • ·        Market Resistance: It is the price point of an underlying shares/index beyond which the bull pressure becomes weak and no further up movement is expected.






  • ·        Market support: It is the price point of an underlying shares/index below which the bearish pressure becomes weak and no further downward movement is expected.






  • ·        Bull market (Bullish): In simple words, it refers to the upward trending market. Buyers always remain active during such trend.
Fig.4: Bullish market






  • ·        Bear market (Bearish): Similarly, it refers to the downward trending market. Here, the seller remains more active than the buyer.


Fig.5: Bearish market









  • ·        Break out: When the price of the shares/index crosses the resistance level and move upward, it is called a breakout. Under break out scenario, Resistance itself becomes the new support line.


Fig.6: Market Breakout






  • ·        Break down: When the price of the shares/index moves down and goes below the support level, it is called break down. Under break down, the support itself becomes its new resistance level.


  • ·       Long position: If a buyer with the expectation of the market/shares to move upward buys the underlying assets (i.e. shares), then it is said that he had entered a long position.


  •  Short position: If a seller with the expectation of the market/shares to fall downward sells the underlying assets (i.e. shares) that he had previously bought, then it is said that he had entered a short position.


Fig.7: Long And Short Position








  • Square-off position: It means you nullify the transaction and exit from the market. Example: when you had entered the long position, your transaction is said to be squared off when you sell those shares. Similarly, where you had entered a short position, your transaction is said to be squared off when you buy those shares.


Fig.8: Square-off position

















Q6. Let’s look at Some Dos and Don’ts of the stock market.



Fig.9: Do's and Don'ts




Conclusion:

 We all know that the trend of investing in the stocks is increasing day by day. The main reason behind it is the good return on investment from the market. But often most of the people lose their money in the market. Despite the fact that the market gives a good return, we also cannot ignore that the market is highly volatile. The only way to earn is by mitigating the risk associated with its volatility. Therefore, Investor should acquire a good knowledge before they invest their valuable fund in the market. 


Also read Beginner's guide for trading in equities.









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