Saturday, February 16, 2013

What is share market? Chapter 1

A brief description on what is Indian share market/stock market and its activities. 
     Man is always concerned over the money.  To him, it must keep growing and to be stored safely.  It won’t grow multiples in the case it being kept locked in the shelf.  Besides, a lot of hard work and knowledge are needed in order to use it for business.  If we intend to deposit it in any banks or financial enterprises, the interest rates are not as hopeful as to bring much benefits.  Here, it comes the relevance of  share market investment.  The size of profit fetched from the share market, with comparatively meager capital, cannot even dream for a commoner from any other source of income.  But the matter of loss, which is the biggest draw-back, also possibly be the same. 

     Share is commonly referred to the ownership of a company or establishment.  Share holders are, virtually, company owners and they have the right as equally as the owner of the company in its asset and revenues.  For example, if one trader buys 100 shares of Reliance, he is one among the lakhs of share holders of the company.  He has the right in the company in accordance with the number of shares he owns.  He is eligible to avail the dividend of the profit as well.  A shareholder has the right to present his own views in some matters of the company. He too has the right to information that how the company is being run.  However, the company is run by a selected director board, which is elected from the share holders.

     Like any other commodity, share ownership also can be used for transactions. It can be either bought or sold. It can be gifted when it is needed to do so. It absolutely up to him whether he should continue as a share holder or not. 

Initial Public Offer (IPO)
     When a company directly receives money from the public, the process is called Initial Public Offer (IPO).  Which is also known as primary market.  After the distribution of shares through IPO, the company will make available the shares in share market and thus it can be traded. This is also known as listing.   After listing, the public can buy and sell shares and the platform where the trades execute is commonly pronounced the secondary market.  Therefore, the share market is commonly referred to the secondary market.  However, the companies are not directly allowed to sell its shares in secondary market, which means, share trading process is not directly connected with the companies.  

     It is stock exchange that controls the trading transactions of share market.  Every clients, who perform trading in stock exchange, must have an account called DP account.   Depository participants, the licensed members of share market, help public to open DP accounts. Normally, banks and brokers are working as depository participants.   After the information technology took prominence over the share trading process, the system which keeps share certificates are changed to an electronic method called depository. This method is widely known as demat.    Share market is a place where the shares are being bought and sold.  Stock exchange acts as a host for all these transactions.  Share transactions are mainly to types. Primary market and secondary market.  

How to trade?
     Share trading is not simply possible to everyone who would like to.  There are some rules and regulation to start with.  Since the brokers are only authorized to perform the trading, every individual must contact a broker in order to open a depositary and demat accounts.  When one person contacts a broker for buying the share, the broker will buy the shares on a price which the client ordered.   Initially, the broker should pay the money and they transfer the share to the DP account of the client.  Brokers are paid commission for this service. Besides, the client must pay the transaction tax also.  Though the share trading is also possible not through the stock exchange, the law and order will not be in favor of the client in case of any complaints occurred in such transactions. 

    Share trading can be done by directly being present at the office of broker, by giving trade instructions through the telephone or by using an internet platform provided by the broker.    A contract note document, which contains the details of trade, will be given to the client after the trade executed.  A 'unique order code number' will be given to the trader upon all transactions. This number will be mentioned in the contract note and that document is very important in stock transactions.  Contract note will be needed to produce wherever the complaint arises on account of the trading.   In a trade, the share certificate will initially reach into the demat  account of the broker or sub broker and later, the depository participant will transfer these shares to the account of share holder. 

Security  and Exchange Board of India (SEBI)
     The mighty institution, observing and controlling the activities of share market in India, is Security and Exchange Board of India (SEBI).   This autonomous institution was established in 1988 and  there had been the formation of a new law, SEBI act-1992 in the year 1992.  SEBI is responsible for taking decisions and solving issues regarding all stock market activities.  SEBI license is mandatory to all brokers and sub brokers. 

     Share trading is not a gambling.  The profit fetches from share trading is when the wisdom and rational thoughts work together.  Nowadays, even commoners are being encouraged to enter the share market.  It is necessary to earn sufficient knowledge and awareness before getting entered to the world of share market as it is the place of glittering fortune as well as the place of the treachery pits same time.

Related articles:
1. Fools in share market 
2. Hold or book profit? 
3. Value picks v/s value traps
4. Intrinsic value and market value
5. Smart order routing (SOR) to help investors  
6. How to select good shares? 
7. Stock market: 7 misconceptions  
8. Support and resistance levels 
9. Chasing trends; Good or bad? 
10. Absolute breadth indicator and the mood of market
11. Intraday trading: An introduction


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