Win Dalal Street

Basics of Stock Market Trading

New Investor?

Basics for Beginner’s to the Stock Market
Before investing, it is always wise to learn the Basics of Share trading.
Whether it is National Stock Exchange (NSE), Bombay Stock Exchange (BSE), or New York Stock Exchange (NYSE), trading risk & strategy or more or less similar.

Invest Money in Shares?

Generally people would like to try luck in the Stock markets. Yes, Why Not ?Trading in stock market is one of the most lucrative method of making money.
We have few conventional methods of investing money like,
• Post office/LIC FD/recurring (6 to 8 % interest PA)
• Bank deposits (nowadays from 3.5 to 8 % interest PA)
• Government Bond/schemes (3 to 7 % interest PA)
With comparatively good returns than above investing here is good idea, but with some guts.
• Gold/ silver
• Land
• Fixed asset/property
Now in stock market we can watch stocks up by more than 50% in a day. Which seems to be very exciting, Isn’t it? We watch famous share price from 700 to 3200+ in 2/3 year span only. Great returns !
Now above all to make some good side-income or to arrange our savings in proper ways people Start investing in stock market.
Now first of all, have a look to risk & return in different ways of trading, See this list Risk & returns is there in ascending order.

(1)Cash market (2)IPO /FPO (3)BTST (4)Intraday (5)Options: calls & Puts (6)Future markets

(1)Cash market

Beginners should start with A group share, rather he /she should begin buying share from Sensex/Nifty.
Sensex means :BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of 30 stocks with the base April 1984 = 100.
The S&P CNX Nifty, or simply Nifty means the a value-weighted index composed of50 companies representing 24 sectors of the economy on the National Stock Exchange Now a beginner should pick up any stock from Sensex or Nifty but on decline so thathe/she can get maximum benefit.
Remember investing with limited funds.
As per example if I have 50,000 Rs spared for investment than I should start with Rs.5,000 Or say Rs.10,000 only.
Buy this A group stock with limited quantity and now you have to watch this stock price on daily or regular basis. If it is giving 20/25% returns in 1 /2 months, Book Profit. Investor who brings Profits to home is the Smartest investor.
Otherwise as per example :
(1) Infosys was quoting 1400 in 2005 & gone to 2300 in 2007,If one hasn’t sell it on Rise. See price went to 1040 in 2008 & now quoting @1400.
(2) Tata Steel price range from 300 to 925 & from 925 to 150 ,now quoting @260
So with periodic rise book profits & buy at deeps should be good strategy for Beginners.

(2)IPO Initial public offering (IPO)/FPO

IPO is simply as a public offering is when a company issues common stock or shares to the public for the first time. They are often issued by younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
Yes, IPO is also a risky investments. For the individual investor, it is difficult to predict what the share price will do on its initial day of trading and in the near terms as there is very little historical data or background to analyze the company.
The main difference between Initial Public Offer (IPO) and Follow on Public Offer (FPO) is as the name itself suggests IPO is for the companies which have not listed on an exchange and FPO is for the companies which have already listed on exchange but want to raise fund by issuing some more equity shares.
So best way for invest in IPO/FPO is to study company prospects properly & invest wisely. But unfortunately IPO market has given bad results in recent time, as most of company is quoting in discount to offer price in recent time.

(3)BTST: Buy Today sell tomorrow.

Buy today & SELL tomorrow /STBT: SELL today & BUY tomorrow
In BTST CALL , you can take delivery of share, may be one hour before market closing Buy share & sell it on next day.
Just like BTST, there are STBT calls which is Sell today buy Tomorrow, But In STBT call you have to trade in FNO segment.
Mainly BTST in calls performs when the market sentiments are clear and some news or some event is taking place in particular stock.
This trading can earn profits from 15 to 20% depend upon the stocks.

(4)Intraday Trading

Intraday trading is to take position of any stock during a single day. Either buy or stock but before market closing one has to square off position. Intraday traders targets on small moves in the value of a share.
For example, a intraday trader with Rs.10,000 in his/her account can take a Rs.40,000 position in a stock for day trading purposes. But this amount is not allowed to be held overnight.
One has to be careful with very strict about cutting losses with stop loss values.
Cut your losses short and let your profits run. …With this basic rule intraday trader can be wrong on 50% of his/her trades and still make good money.
In many cases traders take positions for only a few minutes, & in some cases holing a position for most of the day. Some day traders are momentum followers and jump onto any given move, while others try to identify intraday reversals. Virtually at the end of the day all intraday traders use technical analysis ,stock charting, heavily in their decision making.
Because of the high profits and losses that intraday trading makes possible, these traders are sometimes portrayed as bandits or gamblers by other traders.
One has to be clear in mind that brokerage should be very very low an intraday trades.
May be trader with bank demat accounts has to pay comparatively huge intraday trade brokerages which is not much advisable for an Intraday trader.

(5)Options: call option & Put option:

A Call option represents the right (but not the requirement) to buy a set number of shares of stock at a pre-determined 'strike price' before the option reaches its expiration date. A call option is purchased in hopes that the underlying stock price will rise well above the strike price, at which point you may choose to exercise the option. Exercising a call option is the financial equivalent of simultaneously purchasing the shares at the strike price and immediately selling them at the now higher market price.
A Put option represents the right (but not the requirement) to sell a set number of shares of stock (which you do not yet own) at a pre-determined 'strike price' before the option reaches its expiration date. A put option is purchased in hopes that the underlying stock price will drop well below the strike price, at which point you may choose to exercise the option.
Now if one is to buy a call option or put option than maximum risk is the total investment. The premium/price paid multiply by the quantity. But at the same time if a trader sell call/put option than risk is very difficult to predict. So it may involve lots of risk.
But Options and hedging is comparatively good idea to play with lesser risk but it needs More exercise, study & analysis.

(6)Future markets

In simple words futures trading, is a contract, which is essentially an agreement between two parties to buy or sell an underlying quantity of shares at a certain time in the future at a certain price. A futures contract usually has a standardized date and month of delivery, quantity and price. Futures trading is usually carried out on a exchange. Futures differ from forwards in terms of margin and delivery requirements. In order to facilitate liquidity in futures trading, the futures exchange specifies certain standard features of the contract.
Here In India stock futures on the NSE. In futures markets ,trader can take buy/sell position in index or stocks contracts having a longer period of up to three months. If, during the period of the contract time, the stock price moves in your favour ( rises in case of buy position or falls in case of sell position), Trader can make a profits.
At Present in NSE only few selected stocks, which meet the criteria on liquidity and volume, have been enabled for futures trade.
Normally most of stock have circuit filters from 2 % to 20% depend upon the group & stock,But
The selected stock for Future markets have not circuit filters.
Example:
Satyam :price range was from 200 to 30 Rs .in a single day.
Essar Oil: price from 70 Rs. To 130 Rs in a single day.
But remember if trader who hold any Future position of any stock this kind of swing may bring fantastic unbelievable profit or a huge huge loss. So Future trading is one of the most risky trade.
Some expert traders trade futures with covered call or puts option to restrict their risk.

Summary:

Trading in Stock market needs lot of patience, Sharpe decisions, periodic profits booking, play with strict stop loss.
Most importantly trade within your capacity ,don’t trade with huge volume & trade blindly. In most of this cases the profits are hardly 2 / 5% but losses are much bigger than that.
Finally we repeat that with periodic stock price rise book profits without much greed & buy at stock deeps should be good strategy for Beginners So better to study all of these aspects go through market basics clear. Unless a trader be wasting time and loosing money with rumors . Trader must be crystal clear of each and every aspect of Investments, stock call put options, Stock Trading, Company, background, Share Holding Pattern, Dividend & Types of Shares, Debentures, Securities, FII & Mutual Funds activities, & Options, Indices, SEBI , Analysis of Stocks , Trading Terms (Limit Order, Stop Loss, Put, Call, Booking Profit & Loss, Short & Long), Trading Options – Brokerage Houses & more.
Wishing you a good luck in stock exchange!!!!!