Question 1

What is the stock market?

Accepted Answer

The stock market is an online platform where people invest in financial instruments such as stocks, futures, bonds and derivatives. It facilitates the seamless buying and selling of shares of publicly listed companies. The two primary stock exchanges are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Stocks represent fractional or part ownership of a company, and the stock market helps investors buy and sell these stocks. Anyone who buys and sells shares on the stock exchange, including individuals and corporations, is a market participant.

SEBI regulates the capital markets in India. Several market participants such as stock market brokers, depositories, depository participants and clearing corporations ensure the smooth functioning of the stock market in India.

Question 2

How to invest in the stock market?

Accepted Answer

You must register yourself with a stockbroker or a Depository Participant such as a bank to invest in the stock market. It is vital to pick the suitable Depository Participant or stockbroker before you commence your investment in the stock market. For instance, many investors opt for Demat and Trading Accounts from banks for convenience.

The shares you purchase are stored in electronic form in your Demat account. Moreover, Demat Accounts are maintained by the two depositories, CDSL (Central Depository Services Ltd) and NSDL (National Securities Depository Limited).

Your trading account helps you buy and sell shares. You must complete your KYC requirements through identity and address verification before opening the Demat and Trading Account.

Question 3

Steps to invest in the stock market:

Accepted Answer

STEP 1: You must open a Demat and Trading Account linked with your bank account through a stockbroker or Depository Participant.

STEP 2: Complete KYC by submitting identity proof such as PAN and address proof such as copies of Passport, Driving License or Voter’s ID before opening the Demat and Trading Account.

STEP 3: You will have to transfer funds from your bank account to your Trading Account to purchase the desired stocks. You cannot buy shares unless you have an online bank account.

STEP 4: You will require a Unique Identification Number (UIN) if you want to trade-in amounts of Rs one lakh or more at a single time.

STEP 5: To buy and sell shares, you will have to inform your stockbroker of the name of the firm whose shares you seek to purchase, the quantity and the share price. After the buy trades are executed in your Trading Account and the Stock Exchange confirms the transaction, the shares will come into your Demat Account in T+2 days.

Question 4

What time share market opens?

Accepted Answer

Your trade transactions with a stock exchange will only be processed during business hours. The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) follow the same timings. 
 
Markets are open between 9:15 a.m and 3:30 p.m from Monday through Friday. Stock exchanges are closed on predefined days, and you can find out the dates on the official calendars of the stock exchange. 
 
However, there are sessions that open even before 9:15 a.m. 
 
i) 9 a.m - 9:08 a.m: this pre-opening session allows transactions to be placed by investors. The transactions placed in this duration are given preference over others and are cleared once the actual trading starts. The trade orders can be cancelled or modified by investors ,and one cannot place any trade order once this window expires. 
ii) 9:08 a.m - 9:12 a.m: in these four minutes, the prices of the securities are determined by matching the demand and supply prices to ensure there is accuracy in the transactions made by investors. The final prices are determined, through a multilateral order matching system, at which the actual trading starts once the markets open for regular trading. The price matching is critical in arriving at the price at which the securities are transacted when the regular trading starts 9:15 a.m onwards. 
iii) 9:12 a.m - 9:15 a.m: This window exists to facilitate a smooth transition between pre opening and normal trading sessions. No orders can be placed in this duration, and those placed between 9:08 a.m and 9:12 a.m cannot be modified or cancelled in this duration. 
Post 9:15 a.m, investors can place trade orders through 3:30 p.m. The trades placed in this window follow a bilateral order matching system.

Question 5

How to learn stock markets?

Accepted Answer

You must first read books and go through websites on stock market basics to understand what shares are and how to invest in them. The first step of investing in the stock market is doing your research or homework.

It also helps to understand stock markets better by attending seminars and workshops on stocks, taking classes on stocks, and reading books on successful investors.

If you seek hands-on practice before investing in stocks, you could try a stock market simulator. You could create an account on a stock market simulator, choose a set of stocks and see how they perform over time. It helps you gauge the performance of stocks and the stock market without investing any money so that you don't suffer a loss.

Question 6

What are blue-chip stocks?

Accepted Answer

Blue-chip stocks are the stocks of financially stable, well-established, and high-quality companies that are market leaders in their respective sectors. These companies have gone through various market phases and have weathered the storm of market volatility over the years, and hence, have gained the trust of shareholders and investors.

Blue-chip companies are generally expected to provide investors with regular dividend payouts and growth over time as these companies have a solid business plan, management, and market positioning. Most conservative investors start their equity investment journey with blue-chip companies as they are expected to be relatively stabler.

Question 7

What is volume in the stock market?

Accepted Answer

Stock market volumes indicate the number of shares bought and sold over time or during a trading day. For example, the more active the shares, the higher are the volumes.

You can analyse the trends and patterns in the stock market through volumes. Shares that are actively traded have high volumes, and those which are not actively traded have low volumes.

Stock exchanges publish trading volumes for every trading session as the total volume of all stocks that are traded on the stock exchange. Interest in this share is high if there are enormous volumes for a particular share.

Question 8

What is LTP in share market? (last traded price)?

Accepted Answer

The last traded price or LTP is the price at which the stock was most recently sold. The LTP may or may not be the same as the closing price of the day, as the closing price in some exchanges is calculated as the weighted average of the last few minutes of the trade. It must be noted that the last traded price is simply the price at which the previous trade of the security was executed at any given point in time.

One must remember that LTP is always a historical number, and the recorded LTP could only be of a few seconds ago. Furthermore, when you buy a share, it may be the case that you may have bought it at its LTP. Since trades take place every second, it may not be possible that you have traded shares at their LTP.

Question 9

What is index in stock market?

Accepted Answer

A stock market index, such as the S&P BSE Sensex or NSE Nifty 50, can be considered as the benchmark to measure and track the movement of a bundle of shares. One may consider the performance of an index as the base point to compare the performance of a sector or group of stocks.

Indices are of two types; broad and sector-specific. Broad indices are constituted by stocks of every sector, for example- BSE Sensex, while sector-specific indices comprise stocks of a given sector, for example - NSE Nifty Bank.

Indices measure the performance (price-based) of baskets of shares with the help of standardized methodology and metric systems. Furthermore, indices exist to aid the measurement of important financial and economic data such as inflation, interest rates in the economy, and manufacturing output.

Question 10

How to analyse stocks?

Accepted Answer

To analyze the performance of a stock, you would need to conduct fundamental and technical analysis.

Fundamental analysis is a tool to measure a stock's intrinsic value by scrutinizing its fundamental factors (financial and economic). Under this, you will examine everything that may have a direct impact on the share price, ranging from macroeconomic factors like the condition of the economy, industry trends, compliance and legal matters, and the management of the company.

The main intention is to deduce a number that investors may have as a reference with the share price to determine if the share is overvalued or undervalued. On the other hand, technical analysis involves determining the future movement of the share price with the help of past data.

Question 11

What is NSE and BSE in the stock market?

Accepted Answer

A stock exchange is a market where the shares of a public company can be bought and sold by investors. The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the two largest stock exchanges in India.

Bombay Stock Exchange, established in 1875, is among the oldest stock exchanges in the world. It is also the oldest stock exchange in Asia and is located on Dalal Street in Mumbai, Maharashtra, and its market cap stood at a massive Rs 255.003 trillion (US$3.4 trillion) as of Sep 2021, making it the ninth-largest stock exchange in the world.

The National Stock Exchange was established in 1992 by leading banks and financial institutions such as insurance companies. It is also the first-ever electronic dematerialized stock exchange in India. NSE is based out of Mumbai, and its market cap as of August 2021 was $3.4 billion.

Question 12

What is the upper circuit in the share market?

Accepted Answer

Stock Exchanges such as BSE and NSE have set up a price band every day to protect investors from a single day's reactive drop or hike in share prices.

The price band is set up depending on the last traded share price. For example, the upper circuit is the maximum possible price the stock can trade on a designated day. Moreover, the lower circuit is the minimum or lowest possible price the stock can trade on that day.

Based on their criteria, stock exchanges set up limits for stock at 5%, 10%, or 20% on either side. Moreover, a stock that hits the upper circuit has only buyers and no sellers. For example, positive news could lead to high demand for the shares of a particular company, and it hits the upper circuit. A stock hits the upper circuit if there is a higher demand for its shares as compared to the supply,

Question 13

What is PE in the share market?

Accepted Answer

The PE Ratio or the Price to Earnings Ratio is used mainly for stock selection. It helps you compare the stock price to the earnings generated by a company. For instance, the PE Ratio measures the price the market is willing to pay for every rupee of a company's earnings.

P/E Ratio = Current Market Price per share / Earnings per share

You must divide the market price per share by the earnings per share or EPS to determine the PE Ratio. The P/E Ratio helps you compare the valuations of individual stocks or even stock market indices such as the Nifty 50.

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