Introduction to Stocks
Hey guys, this is Murali from Stock Market Signals. We’re going to start a new video series and this is the first video. This video series is for: – Mostly beginners. When I said beginners, it means you want to start investing in Stock Market. This is a great place to start, where you can get great insights and will definitely gain a lot of value from this video series. – Intermediate Traders. This means that if you already started trading a little bit and then you bought some shares and made some money and you lost. This is also a great place for you to gain knowledge, because even though in the beginning we share very few fundamentals and eventually we will be going towards the exact strategies and things like that. So, we will try to make it very simple and at the same time the value is there. Even for intermediate traders, I think this video series will be very helpful. Also, some traders like an Advanced Traders or Experienced Traders if you think that there is a little more scope for you or for your gains and make more profits and you want to step back a little bit and understand what is this, what exactly is going on… If there is any strategy to follow, this is a good place too. Probably not the first couple of videos, but you’ll definitely gain value. Stock Market. Like you’ve invest in stock market, and the biggest benefit of course is to make money. This is not the easiest, but if you have discipline and if you follow the rules of the game it is one of the good ways to make money. Our process here is to simplify the whole process, so that you’ll have the simple steps to follow in a disciplined way and make profits. That’s our goal. And other thing, I could assure you that if you set up your own rules which will tell you how and if you follow them, then you will make some profits. It’s going to be very emotionally rewarding. What is Stock Exchange? Stock Exchange is where most of the campaigns are listed. For example: You made a machine which is actually a new type of turbine which will convert wind energy to power. You did research about it, you made a product and then now, you want to raise some money to build it and manufacture that and market it. You go out and sell that idea to investors. I need one crore of rupees for that I will give you a percentage of my company. Instead of doing it at an individual level, you can actually do it at the Stock Exchange. Of course you cannot do at such a small level but just to get an idea. So that’s what the Stock Exchange’s whole purpose is. A company is listed, then individual investors buy the shares of this company. Which means that individual will now a part of the company and then the shares are being traded. From a 10,000 feet view that’s what’s the Stock Exchange is. It’s basically, where the shares of these companies are created, traded. What are the Stock Exchanges that we have in India? – NSE. National Stock Exchange. This was started in 1992 and started trading in 1994. We have about 1,500 companies listed in that. Latest Stock Exchange. – BSE. Bombay Stock Exchange. It is older and has been there since 1872 and has 5,000 companies in there. Different kinds of companies are listed in these 2 Stock Exchanges, you may have invested in one equity or one company’s shares then it will be listed in one of these exchanges. Exchange, is nothing but where the trade and where the stocks, shares are being created of a particular company. These 2 Stock Exchanges, hold different companies shares. They don’t hold the shares of these companies, investors will hold them but they will process your shares, trading and things like that. What is a Market Indices? In India, we have 2 Market Indices: – SENSEX. Before we jump into what it is or what kind of indices that we have in India? It’s nothing but a list of companies, So, for an example SENSEX has: – 30 firms/companies in Bombay Stock Exchange. This index started in 1986. This is an accumulated number of all companies in which you can track. – S&P CNX NIFTY. NIFTY, is a bulk of 50 companies from NSE. This started in 1996. Trading Hours: – Stock Exchange starts at 9:55AM (both of NSE and BSE) and closes at 3:30PM IST. – Trading happens from Monday to Friday. – Settlements. When you bought something and then it has to be settled in T+2 Rolling Settlements. Example: You bought something on Monday, then it has to be settled by Wednesday. SEBI – Securities and Exchange Board: This is basically a garment industry which organizes, puts rules and regulations which make sure that there are no cheating or fraudulent. That will modulate all this stocks, trading and the policies. Market: When you say market, the place where you trade your stocks is Stock market. The simplest way to explain, is to say is lets say Company A wanted 1 Crore Rupees, for whatever reason, they want to raise 1 Crore Rupees. What they’ll say is, “I want 1 Crore Rupees and we will issue 10 Lakhs of shares whose base value is 10 Rupees.” People who are going to purchase this 10 Lakhs of shares at a base price of 10 Rupees will eventually all of them together will give this company the one Crore they are looking for. This company is going to take that 1 Crore and utilize it for whatever they promised. Now, the company has 1 crore Rupees in their hands and there are traders, investors who has a part of this company and has shares. So, if a company gives 50% of its market share for 1 Crore then it means the market valuation of the company is 2 crores and there are 20 lakhs shares. Remember the 10 rupees per share. Out of which 10 lakh shares are owned by the investors and the other 10 lakh shares are owned by the promoters, owners whatever you may call it. Now, Person A wanted to buy about 100 shares of this company thinking that when the stock price will increase more. Why does the share-price goes up? It’s basically the market economies, the supply and demand. If there are a lot of people trying to sell then their share-price will go down. If there are a lot of people buying the stocks but not enough people selling then the share-price goes up. This means that you can only buy what is available in the market. Now, let’s say this guy’s stock’s value is 24 Rupees he has 100 shares, his money which he has invested has increased. Now, he wants to sell his stocks for his vacation. Then, I come in and look at the market and the company and found that this company has been doing so good but still it has potential and I’m expecting that it’ll grow more 35 to 40 Rupees. So, then I buy the shares from this Person A at 24 Rupees, then from there he has gotten his profit of 1,400 and I invested 2,400 into the company. So, the market value of the company has actually, gone up. When you say that its trading a 24 instead of 10, the market value has gone up of almost by 2 and a half times. Person A has sold those shares of the company and I bought it so, the share certificate then will be transferred to me. There will be no Middle Men, it’s all electronic exchange. Person A doesn’t know who he’s selling it to and I don’t know where I’m getting it from? Now, I have the shares in my account which are hundred shares valued at 24 Rs. Each. Let’s talk about securities a little bit. You also keep on hearing about the Debt Security, Equity and things like that… Fundamentally, it is a stock security. In banking terms, in financial terms, they call it as, security. What is a Security? It is a financial instrument which has financial value. You need to understand exactly what it is, because you’ll hear a lot of this financial instruments, etc. It is something which holds value. A security can be sold, traded or bought. Two Kinds of Securities: – Debt Security. For an example; you want some money, you take a loan of that money from a bank. Then the bank will get the collateral in exchange of the amount that you want to loan. Then will get a bond from you, they will ask for your signature. Basically, its when you owe the bank or I owe you this much money. There’s an interest rate. Can this Debt Security be traded? Of course, it is. Yes, it can be traded but not by you. It’s not traded in open-market. It’s usually traded by the banks which actually gave you money, it will eventually sell that to somebody else. Then that company will sell it to somebody else, but we will not get into that. – Equity Security. This is what we have discussed earlier, you take the ownership of the company by investing a part of your money into the company. This Equity Securities are traded in the open-market. You call them equities, shares, stocks and they’re all the same. I hope you understood, what is going on. When you’re buying some things or why the market is going up, there are number of reasons. I hope that everything makes sense and thanks for listening. We’ll cover the rest in the next video. Thanks, bye.