Learn Stock Market

Introduction to Stock Markets

The stock market refers to the collection of exchanges and various venues where the shares of publicly held companies are bought, sold, and issued. Learn stock market to understand all these financial activities are conducted through institutionalized formal exchanges (whether physical or electronic) or via over-the-counter (OTC) marketplace that operate under a defined set of regulations. Learn the stock market without hassle and endure the journey to become the best trader.

An investor can easily interchange “stock market” and “stock exchange” and it’s okay to do so, the terms are a subset of each other. If a trader is trading in the stock market it means they are buying and selling shares on one or more companies of the stock exchange that are part of the complete stock market. The leading U.S. stock exchange includes the Nasdaq and the New York Stock Exchange (NYSE). These leading national exchanges, along with several other exchanges operating in the country, form the stock markets in the United States.

Financial Intermediaries

While you are buying and selling in the market, learn stock market investing and then hit your DEMAT account, behind the scenes there are many corporate teams actively tasking out to make it all work for you. These teams play their role quietly behind the curtains, always creating the rules laid out by the stock market, while giving you a smooth and effortless experience for the business in the stock market. The team that normally carries out all the work is called Financial Intermediaries.

The financial intermediaries are interdependent on one another, such as hive and its worker bees and thus the financial markets exist. The below information will help you understand the stock market and take a close look at the jobs and services of financial intermediaries.

The Stock Broker

The Stockbroker is one of the most vital financial intermediaries that one needs to learn about. The stockbroker is the corporate guy, they register themselves as a trading member with the stock exchange and have a stockbroking license. The operations are carried under the guidelines set by the respected stock market.

Stockbrokers are the doorway to stock exchanges. To learn stock market investing trading you need to open a Trading Account with a broker who follows all the guidelines. Other things you need to be wary about is the distance between your house and the broker’s office. At the same time, it can be difficult to identify a broker who can provide you with a single platform using which you can transact across multiple exchanges all-round the globe. We can later discuss in depth how to choose the right broker and what you require.

A trading account lets you carry various financial transactions in the stock market. The trading account belongs to the broker, as it lets the investor buy/sell securities. Let us assume that you own a trading account. Now you are freely able to transact in the markets, you first need to interact with your broker.

You head to the broker’s office and encounter the dealer in the broker’s office and talk to him about your future plans. A dealer is a managerial level at the stock broker’s office and who carries out these transactions for you. You can call your broker at once, without revealing your name, identifying yourself with your client code (account code) to place an order for your transaction. The dealer at the other end will complete the order for you and update your status according to the order while still talking to you.

Doing it on your own is the best way to learn stock market and the most popular and easiest way of transaction in the market! The broker gives you access to the market through their personal or third-party software. After you have logged in to the software you will be able to view live price quotes from the market and you are free to place your own orders.

The basic services a broker can provide will include:

• Giving you margins for trading
• Giving you the complete access of the market and freedom to transact
• Issuing contract notes for the transactions. A contract note is a written confirmation details of the transactions you have carried out during the day
• Provides support- Dealing support if you have to call and trade. Software support if you have issues with the trading terminal
• The broker provides you with a back-office login – which is very useful to summarize your account.
• Facilitate the fund transfer between your bank account and trading.

The broker will charge you a fee for the services they provide known as the ‘brokerage charge’ or just brokerage. The brokerage rates are very different, and it’s vc you can find a broker that suits your taste and find balance between the fee he collects versus the services they provide.

Depository and Depository Participants

When you buy an asset, the only way to recognize and claim that you actually own the asset is producing valid documentation. Hence it becomes vital to store the valid documents of the asset in a safe and secure place.

Likewise, when you buy a share (a share is a part ownership in a company) the only way to show that you are an owner is producing your share certificate. A share certificate only has one job of entitling you as the owner of the shares in a company. Before everything went digital the share certificate was in paper format. The conversion of a paper format share certificate into a digital format share certificate is known as “Dematerialization,” you can use the abbreviation as DEMAT.

The share certificates in DEMAT format are stored in digital format. The place where all the digital share certificates are stored is the ‘DEMAT Account’. A Depository is a financial intermediary which offers the facilities of the DEMAT account. A DEMAT account with your name always has all the shares in the digital format that you have bought. Best way to learn stock market is to know that you can compare the DEMAT account as a digital vault for your shares.

Now you know that your broker’s trading account and the DEMAT account from the Depository are connected. For example, if you are thinking of buying shares of “X Company”, then you just need to open your account and search for “X Company,” look at the price and buy it. Once the transaction is done, the job of your trading account is done, After the purchase is done the shares of “X Company” will automatically rest in your DEMAT account.

But later you get the thought of selling “X Company’s” shares, it is as simple as just opening your account and shorting the stock. It solves the problem created by the transaction part, and in the backend, the shares that are lying in your DEMAT account vanish off to the new buyer.

Banks

Banks play a very vital role in the ecosystem of the market. It helps in simplifying the fund transfer to the trading accounts through the bank accounts. You are prohibited from transferring money from a bank account that doesn’t belong to you.

You are allowed to multiple bank accounts to your trading through which you can transfer funds and trade. Some applications allow you to only have 1 primary bank account and up to 2 secondary bank accounts. You can use all these bank accounts to add funds, but can only use your primary bank account for withdrawal. Any type of dividend payments, capital from buybacks are only sent to the primary bank account. The primary bank account is linked to your trading account, with the Depository and the Registrar and transfer agents (RTA).

With all the information provided to you, you would have understood that the three financial intermediaries operate with three different accounts. The bank account, trading account, DEMAT account. All three accounts operate digitally and are interlinked, giving you a smooth and effortless experience.

The Stock Market Index

Hypothetically if I ask you for a real-time summary of the traffic situation, how is something like this possible and how will you do it?

Here’s an example of the best way to learn stock market: the city you are in has tens of thousands of roads and junctions, so you definitely cannot check every road in the city to find the answer. The quirky thing to do is to quickly check a few vital roads and junctions across the city’s four directions and observe how the traffic is moving. If you majorly observe chaotic conditions across the most common roads, you can hence summarize that there is traffic on most of the roads and it’s a chaos, or else the traffic is considered normal.

The set of important roads and junctions that you tracked to get the outcome of the situation served as an indicator for the entire city’s traffic situation.

Do not think of the stock market as a parallel to the way you checked the traffic, now you know the answer to the question! How will you check the stock market? There are more than 3,500 listed companies with Nasdaq and more than 1800 companies on the New York Stock Exchange. It would be a very painful job to keep a check on all these listed companies and figure out if they are up or down for the day and then get a detailed answer. For this very reason we have S&P 500.

The S&P 500 (Full Form: Standard and Poor’s 500), in the United States, a stock market index that checks on 500 publicly traded domestic companies. It is considered by the majority of investors to be the finest overall measurement of American Stock Market Performance.

So it is vital to identify a few companies to represent larger markets. Every time you are asked how the markets are doing, you just need to check the S&P 500 and the general trend of the specific stocks and then you will have an answer. The S&P 500 and the other selected companies you collectively make up the stock market index.

The Index

Learning the stock market for beginners won’t be easy but good for you, that you do not have to track these selected companies separately to get the idea of how the markets are doing. The vital companies are pre-packaged and continuously supervised to give you valid information in the form of S&P 500. There are many application tools named the “Market Index.”

The S&P stands for Standard and Poor’s, a global credit rating agency. S&P has the technical expertise in constructing the index which they have licensed to Nasdaq and NYSE. The valid index also has the S&P tag.

An ideal index will give you minute by minute reading about how the market contributors expect the future. The movements in the Index reflect the changes and the expectations set by the market participants. When the index goes up, it is not completely because the company is doing good but also because the participants in the market think the future will be better. The index will drop if the market participants think that the future is very rough.

Practical uses of the Index

Here are some practical uses of Index.

Information

The index represents the common market trend for a period of time. The index is a wide representation of the country’s state of the economy. A Stock market index that is up trending indicates people are positive about the future. Same happens, when the stock market index is down, people think that the future of the market is bad.

Benchmarking

For all the trading or investing activity that an investor undertakes, some scale to measure the performance is required. For example, over the last 1 year you invested $100,000 and generated $20,000 return to make a total of $120,000. Now let’s check your performance? I know that 20% returns look great. But, what if the points moved to 7,800 from 6,000 points generating a return of 30% during the same years?

Now, do you think that you have underperformed in the market? No one can figure that out in the Index, in the stock market you never know how you have performed. Learning the stock market for beginners requires that traders or investors take an index into consideration to benchmark the performance. The general objective of market participants is to outperform the Index.

Trading

Trading on the index is perhaps one of the most prevalent uses of index. Popular with the traders in the market trade the index. Traders take a wider call on the economy or general state of affair and translate that into a trade.

Portfolio Hedging

Investors normally build a portfolio of securities. A typical portfolio contains 10 to 12 stocks which they would have bought keeping in mind the long term perspective. The stocks are usually held in for a long term perspective, as the investors are able to see the lengthy and hostile movements in the market (2008), potentially the dying capital in the portfolio. In such a situation, investors can use the index to hedge the portfolio.

Index construction methodology

It is vital to learn stock market basics and understand how the index market works, learn stock market basics, the constructions and calculations especially if one wants to advance as an index trader. As the information given above, the index is a composition of many stocks from different sectors that collectively represents the economy’s state. To include a stock in the index, it should qualify certain criteria. Once qualified as an index stock, it should be able to cross the stated criteria. If the stock fails to maintain the criteria, the stock will be replaced and it will qualify as the prerequisites.

Based on the procedure of selection, the list of stocks is populated. Each stock in the index has been assigned a certain weightage. In layman’s language, weightage defines how important a certain stock in the index gets in comparisons of the others.

The main question to ask is how does the stock get assigned a weightage to make up the Index?

There are various ways to assign weights, in the US each company is weighted by its price per share, and the index is an average of the share prices of the total companies. A price-weighted indexes give greater weight to stocks with higher prices in terms of their involvement to the index value and changes in the index.

Free float market capitalization is the product of the total number of shares outstanding in the market and the stock price. For example company, X has 100 shares outstanding in the market, and the stock price is at 50 then the free-float market cap of X is 100*50 = $5,000.

Why learn Stock Market Trading?

Investing is a way to create funds for the future or retirement, which you keep aside and get busy with life and leave the money to work for you so that you can fully reap the rewards of your hard work in the future. The messiah of all the investor Warren Buffett comments about investing that, the process of investing money in assets and expect more money in the future. The goal of investing is to have a happy ending and make the money work for you in one or more types of investment vehicles in the hopes that it reaches new heights over time.

For example, you have kept $1,000 aside and now will enter the game of investing. Let’s take another example where you only have an extra $10 a week and you want to make an investment with it. You can totally start with investment (become an investor), with even the smallest of money. There is no limit to one’s fortune when it comes to investment.

KEY TAKEAWAY

• Investing is the act of committing capital or money to an idea or plan with the expectation of obtaining a side income or a profit.
• Unlike expenditure, investing allocates the capital to your future, in the hope that it will soar heights in future.
• But you need to understand that investment also comes with losses.
• Investing in different stocks in the market is a very common way for the beginners to gain new experience.

How to avoid Loss And earn consistently in the stock Market

Learning stock market basics will help you understand that there is always a short answer and a long answer, the longer version is rather elongated with twists and turns of different financial behaviors. It is a whole subject on why investors hang on to the losing trade. The psychological and emotional reasoning are that help us cope with bad decision making. Eventually you will discover a way to explain yourself even though you are doing something wrong. The self-realization of correction will come at a much later part. If you want to know more about such a behavioral pattern we recommend you to read a book on behavioral finance or listen to an audiobook by Edwin Lefevre named “reminiscences of a stock operator,” it will help you in different ways.

Now let’s go to the short answer “cut your losses short”. A winning strategy is simple: it requires a positive risk reward on your trades. “Make more money by winning trades, lose less on losing trades.” The simple and quick way of doing this is to normally look at the mark to market amount and think will it bother you! If it bothers you in the tiniest amount, close out the trade without the thought. Now when you re-enter into a fresh trade go with a new signal that confirms your original view on the security that you’re trading. You can do this as many times as you want and say that the original reason for buying the security doesn’t exist anymore, or that it did not behave in the way you anticipated soon enough, it is time to get out.

It can be compared to taking a painkiller when you suffer extreme pain or a headache. The pain will go away for a moment, it will only go away if you close your losing trade. The next step of pain will be very similar to a block of ice where you have been hurt, there will be a short-term numbness that eventually fades away and formulates you to be able to think without hindrance ever again.

Humans have a tendency of making wrong decisions while suffering through the pain and they take a lot of efforts to prove their point right. The market is taking care of that part for you. Acceptance of the fact that you are wrong places a big factor in moving on. Once you have moved forward, you will be able to not only close out the losing trades, and quickly jump to the preparation to take the next trade head on.

Experts have found out that the methodology that you follow is not wrong but the presumption of the winning trades and the execution that destroys the end result. You can only be right 6 to 7 times out of every 10 positions that you take. So, not investing or trading is not even an option. The game is hard, if you want to play it, you have to be prepared for a loss of up to 40% of your trades or investment decisions will be wrong. Achieving a high risk reward ratio then is a function of closing out those approx. 40% trades as soon as they become pain points or think that the reason for entry has been proven wrong.

If you start your day thinking that you are going to be right and ace the market without getting a single loss then you will never be able to get the end result. The Holy Grail doesn’t exist in the stock market as it is the game of probability. What is winning? It is avoiding losses, losing trades the summation of which over a period of time needs to end up being positive. Are you trying to be right a hundred percent of times? No, your ego is and you will fail, there is no win.

Getting started with technical analysis

Many investors examine stocks based on their own principles, such as their valuation, revenue or different industry trends, but fundamental factors aren’t always reflected in the market price. It is one of the best way to learn stock trading. The technical analysis seeks to predict price movements by examining past data based on volume and price.

It helps investors and traders map through different gaps between intrinsic value and market price by leveraging techniques like statistical analysis and social economics. Technical analysis helps guide traders what is most likely to happen given historical information. Majority of the traders rely on both fundamental and technical analysis to make decisions.

KEY TAKEAWAYS

• Technical analysis or usage of charts to identify trading signals and price patterns can be devastating or mysterious at first.
• Newbies should first recognize why technical analysis works as an opening in the psychology of the market to know what opportunities to profit from.
• Focus on a specific trading method and develop a well-organized strategy that you can follow without letting in emotion or having second thoughts about the trade.
• You need a broker that will help you with an affordable plan while offering you a trading platform with the right weapons and tools that you will need.

Have a disciplined approach for investment

Any kind of discipline isn’t easy, but might be the best way to learn stock trading. Investors claim to have “investment discipline” but on the contrary, the majority chase performance, emotionally react to the market moods, and normally spend more on trading than “investment discipline” would suggest. Even if a trader has a long-term plan in action, and they don’t follow, it makes the plan useless. Many “expert traders” have seen their good intentions washed up by the shore many times because they didn’t follow investment discipline.

The above observations aren’t just limited to some investors. There have been similar conduct from investment advisers who say they have a disciplined strategy, only to add that the strategies have the power to adapt to changing market conditions, when warranted. It is a loophole that gives ample opening for ever-shifting adjustment based on what seems to be the right move at the right moment. It’s particularly common in bear markets when clients start becoming anxious and start hinting that they may be looking to take their business elsewhere. There are many loopholes in discipline statements that allow an adviser to sustain clients, but lack of discipline is seen in the clients with long-term interest.

Here we have put together six rules to follow investing discipline. It might help you and moreover your adviser and make long-term decisions:

• Have a long-term investment attitude.
• Form a sensible asset distribution based on the attitude.
• Choice low-cost funds to characterize asset classes in the distribution.
• Uphold the portfolio through all market situations.
• Don’t modify the asset distribution due to current market activity.
• Don’t stay put on new investments while you wait for market lucidity.

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