Understanding the Importance of Stocks
A stock is a small share that represents a partial ownership of a company. Stocks are issued by companies in order to raise capitals and are bought by investors in order to acquire a portion of the company. Even a small share of the company will give the investors the right to have a say in how the company is run. Although they gain a portion of the company’s profits, investors do not carry an obligation to the company in cases of defaults or lawsuits.
Stocks are issued by companies to raise capital. A cash injection is needed for either property acquisition or company expansion. Every stock is limited to a particular number of shares. The growth potential and perceived health of the company influences the market adjustment of the par value of the stocks.
An instruction to buy or sell a stock at the current market price is called a “market order.”
STOP ORDER / LIMIT ORDER:-
An expectation of stock price movements that leads to the interest of buying or selling stocks at a certain price above or below the current price initiates the placing of either a “stop order” or a “limit order.” A stop order instructs the broker to trade at a certain stock price, while a limit order instructs the broker to trade at a specified stock price or something better.
Stop orders, which help in limiting losses and protecting profits, become effective when the market hits the stop price. Because the stocks are traded at market price after they become active, brokers who are given stop orders are allowed to trade above or below the stop price. Limit orders, on the other hand, may not be placed at all even if the market reaches the limit price. The fast movement of the market may not provide enough time to execute the order before the price falls out of the limit price range.
For example, an investor buys a share of Bell Canada Enterprises (BCE) at $50 and put in a stop order of $45. If the BCE stock price falls to $45, the stop order will become effective and the stock will become available at market price. Conversely, if an investor buys BCE for $60 and put in a limit sell, then his stocks will be sold at a profit only when the price rises to that level.
GTC / DAY ORDER:-
All orders can be placed as either “good ‘til canceled” (GTC) or “day order.” A GTC order will remain in effect until it is canceled but a day order will remain in effect only until the end of the current trading day.
Index in share market
Index consists of group of shares. Index denotes the direction of the entire market.
Like when people say market is going up or down then that means Index is going up or down.
Index consists of high market capitalization and high liquidity shares.
High Market capitalization shares – Companies having highest number of shares and highest price of each share.
Market capitalization is calculated by multiplying current share price and number of shares in the market.
High Liquidity shares – Shares in the market with high volumes.
Two types of Indices
Nifty – Nifty consist of a group of 50 shares.
Sensex – Sensex consist of a group of 30 shares.
Mainly there are two exchanges in India.
NSE (National stock exchange) – Nifty is listed with NSE.
BSE (Bombay stock exchange) – Sensex is listed with BSE.
NSE and BSE are countries economic barometer.
Stock exchanges like NSE and BSE are the places where the trading of shares takes place.
Share and share market
Share is nothing but the Ownership of the company divided into small parts and each part is called as Share or Stock.
Share is also called by different names like equity, financial security and so on.
A person carrying a share of a company holds that part of ownership in that company.
A person holding maximum shares carry maximum ownership and designated like director, chairman etc.
A Share market is the place where buying and selling of shares takes place.
Now days due to internet and advanced technology there is no need to present physically in exchanges like NSE and BSE but in fact the buying and selling of shares can be done from anywhere, where there is a computer with internet connection.
One should have a demat and trading account, computer and internet connection and he/she can start the share trading or investing from anywhere.