Basics of share market

Basics of share market

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What is share market? Market is that place where trading (buying and selling) of the previously issued securities are done, these transaction is generally done through the stock exchange. Basically traders buy or sell a part of company.

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Trading & Types of tradingThe share of a company are in general be transferable from one shareholder to another, this leads to buying and selling of shares termed as trading. Investors usually buy and sell shares on the EXCHANGES through a stock broker registered with the exchange.Types of tradingIntraday-Same dayDelivery or positional-Holding basisWays of tradingOnlineOffline

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Major indicesWhat is an index? An index is an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. NSE Major Index- S&P CNX Nifty 50 The Nifty is an indicator of all the major companies of the NSE. If the index goes up, it means that the prices of the stocks of most of the major companies on the Exchange have gone up. If the index goes down, this tells you that the stock price of most of the major stocks on the Exchange have gone down. BSE Major Index - Sensex 30Its a Value-weighted index and consists of 30 largest and most actively traded stocks. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. The Sensex is an indicator of all the prices of the major companies of the BSE.

Nifty 50 Companies List & Sector-wise Weightage

SectorConstituentsWeightage (%)CigarettesITC6.51PharmaceuticalsCipla0.95Dr. Reddys Lab1.32Lupin1.19Sun Pharmaceutical2.54Aurobindo Pharma0.66Information TechnologyHCL Technologies1.5Infosys6.44TCS4Tech Mahindra1Wipro0.99CementsACC0.42Ambuja Cements0.54Grasim Industries0.93UltraTech Cement1.24AutomobileBajaj Auto1.21Bosch0.62Hero MotoCorp1.34Mahindra & Mahindra1.82Maruti Suzuki2.31Eicher Motors0.95Tata Motors2.93Tata Motors Ltd. (DVR)0.5

Financial ServicesAxis Bank2.63Bank of Baroda0.51HDFC6.61HDFC Bank7.98ICICI Bank5.1IndusInd Bank1.8Kotak Mahindra Bank2.98State Bank of India2.65Yes Bank1.28MetalsCoal India1.29Hindalco Industries0.74Tata Steel0.92EnergyBPCL1.11GAIL (India)0.66NTPC1.33ONGC1.71Power Grid1.39Reliance Industries5.41Tata Power0.44TelecomBharti Airtel1.41Idea Cellular0.32Bharti Infratel0.66Consumer GoodsAsian Paints1.44Hindustan Unilever1.99ConstructionLarsen & Toubro3.75Industrial ManufacturingBHEL0.39Media & EntertainmentZee Entertainment0.82ShippingAdani Ports and Special Economic Zone Ltd.0.78

Major World Indices: Asian Indices:1. Straits Times - Singapore Exchange 2. SSE Composite Index Shanghai Stock Exchange ( CHINA) 3. Hang Seng Hong Kong Stock Market 4. Nikkei 225- Tokyo Stock Exchange (Japan)American Indices:1. NASDAQ Composite Index - NASDAQ America 2. S&P 500 - Dow Jones, NYSE , NASDAQ ( America) 3. Dow Jones Industrial Average Dow Jones ( America)European Indices:1. DAX 30 (Deutscher Aktien Index) - German Stock Exchange 2. BEL20 (Belgian 20 Index) - Euro Next Brussels, Belgian 3. CAC40 (Cotation Assiste en Continu) - Euro Next Paris, France 4. FTSE100 (Financial Times Stock Exchange Index) - London Stock Exchange

World Markets Timings

CountryLocal TimingsTimings in Indian Standard Time(IST)Japan9:00 to 11:0012:30 to 15:0005:30 to 7:3009:00 to 11:30Taiwan09:00 to 13:3006:30 to 11:00Singapore (SGX Nifty)09:00 to 18:1519:15 to 01:0006:30 to 15:4516:45 to 22:30China (Shanghai)09:30 to 11:3013:00 to 15:0007:00 to 09:0010:30 to 12:30Hong Kong09:30 to 12:0013:30 to 16:0007:00 to 09:3011:00 to 13:30USA09:30 to 16:0019:00 to 01:30 (14th Mar to 7th Nov)20:00 to 02:30 (08th Nov to 13th Mar)

European Countries08:00 to 16:3012:30 to 21:00 (28th Mar to 31st Oct)13:30 to 22:00 (1st Nov to 27th Mar)

ExchangeThese are organized market places where stocks, bonds are other equivalents are trades between the buyers and sellers where exchange acts as counter-party to both the participants in case of any default. The contracts are standardized and not customized ones. For example, NYSE, NASDAQ, NSE, Tokyo Stock Exchange, etc. Indian stock marketBSE(Bombay stock exchange)NSE(National stock exchange)

Timing of exchangeWorking Hours of NSE:SessionTiming Pre-open Trading Session 09:00 - 09:15Trading Session 09:15 - 15:30 Closing Session 15:40 16:00

Segments of market1.Equitya.Cashb.Futurec.Option2.Commoditya.Mcx(Multi commodity exchange)b.NCDEX(National commodity and derivate exchange of India)3.Currency

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Equity marketCash is a segment where direct buying and selling of shares is done. Client directly purchase share or sell share in exchange with the help of broker.Future is a segment where bunch of shares or lot are already predefined and trading is done according to lot. The contract expires on a per-specified date or on an expiry date and on expiry, futures can be settled by delivery of the underlying asset or cash. Options are other types of derivatives (other than futures) which resembles both cash and futures when it comes to the characteristics of the segment and the way they are traded in the markets. They expire with futures and are traded in lots (future segment trade) but a trader has to pay full amount, margin trading is not allowed.

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Short sellingThe sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit. Short selling may be prompted by speculation, or by the desire to hedge the downside risk of a long position in the same security or a related one. Since the risk of loss on a short sale is theoretically infinite, short experienced traders who are familiar with its risks should only use selling. Let us understand through an example of company SBIN. Now suppose, SBIN is priced at Rs 250/-. You know its going to fall that day because of some reason. But you dont have any shares with you of SBIN. But still you can sell the shares; this is called as short selling.

Future segment & terminology1. Spot Price: The price at which an asset trades in the spot/cash market. 2. Futures Price: The price at which the futures contract trades in the future market. 3. Contract Cycle: The period over which a contract trades. The index future contracts on the NSE have one months, two months and three months expiry cycle that expires on the last Thursday of the month. Thus the contact which is to expire in January month will expire on last Thursday of January. 4. Expiry Date: It is the date specified in the future contract. This is the last date at which the contracts are trades, at the end of which it will cease to exist. 5. Contact/Lot Size: It is the quantity of asset that has to be delivered under one contract, for instance the contract size on NSEs Futures is 75 Nifty. 6. Initial Margin: The amount that must be deposited in trading account at the time when a future contract is first entered into is known as margin. 7. Mark to Market: In the future market, at the end of each trading session, the margin amount is adjusts to reflect the investors gain or loss depending upon the futures closing price; this is called the Marking-to-market.

Future Margin & CalculationA margin payment is required (which will be blocked by your broker) as long as the futures trade is liveThe margin blocked by the broker at the time of initiating the futures trade is called the initial marginBoth the buyer and the seller of the futures agreement will have to deposit the initial margin amount.The margin amount collected acts as a leverage, as it allows you to deposit a small amount of money and take exposure to a large value transactionM2M is a simple accounting adjustment, the process involves crediting or debiting the daily obligation money in your trading account based on how the futures price behavesThe previous day closing price figure is taken to calculate the current days M2MSPAN(Standard Portfolio Analysis of Risk) Margin is the margin collected as per the exchanges instruction and the Exposure Margin is collected as per the brokers requirementThe SPAN and Exposure Margin is determined as per the norms of the exchangeThe SPAN Margin is popularly referred to as the Maintenance MarginIf the margin account goes below the SPAN, the investor must deposit more cash into his account if he aspires to carry forward the future positionThe Margin Call is when the broker requests the trader to infuse the required margin money when the cash balance goes below the required level

Future MarginParticularDetailsSymbolHDFC Bank LimitedTrade TypeLongBuy Date10th Dec 2014Buy PriceRs.938.7/- per shareSell Date19th DecSell PriceRs.955/- per shareLot Size250Contract Value250*938.7 = Rs.234,675/-SPAN Margin7.5% of CV = Rs.17,600/-Exp Margin5.0% of CV = Rs.11,733/-IM (SPAN + Exposure)17600 + 11733 = Rs.29,334/-P&L per shareProfit of Rs.16.3/- per share (955 938.7)Net Profit250 * 16.3 = Rs.4,075/-

Options & TerminologyOptions are of two types: Call Option and Put Option. The buyer of the Call Option has to pay premium multiplied by the lot-size, and will generate profit if the prices of the underlying asset moves up. The premium of the Call Option moves up with the asset price, just like in Future segment. In the case of Put Option, the buyer of the Put Option will generate profit only if the prices move downwards. Yes, the premium of the Put option increases when the price of the underlying asset goes down. Here in Options we can also short (sell) as explained below but we do not generate calls on selling side. Here we buy both the options depending on the trend of the underlying asset prices. We buy Call Option when bullish sentiments are high and we buy Put option when bearish sentiments are high. We have to pay premium in both the cases to our broker, upfront.

Options terminologies Index options: These options have the index as the underlying asset. In India, they have a European style settlement i.e. it could only be exercised at the expiry day. Eg. Nifty options, Mini Nifty options etc. Stock options: Stock options are options on individual stocks. A stock option contract gives the holder the right to buy or sell the underlying shares at the specified price. They have an American style settlement i.e. it could be exercised before or at the expiry date. Buyer of an option: The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/writer. Writer / seller of an option: The writer / seller of a call/put option is the one who receives the option premium and is thereby obliged to sell/buy the asset if the buyer exercises on him. Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price. Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price. Option price/premium: Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium. Expiration date: The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity. Strike price: The price specified in the options contract is known as the strike price.

MULTY COMMODITY EXCHANGE (MCX)Its a Mumbai based exchange which has started its operations from 11th Nov, 2003.Trading Hours: Morning 10:00 AM to Night 11:30/11:55 PM. NameLot (Quantity) P&L / 1 Rs. Tick size Gold1 Kg. 1001 Rs./10 Gram Silver30 Kg. 301 Rs./ Kg. Lead5 tons/5000 Kg. 50005 Paise / Kg. Zinc5 tons/5000 Kg. 50005 Paise / Kg. Aluminium5 tons/5000 Kg. 50005 Paise / Kg. Copper1 tons / 1000 Kg. 10005 Paise / Kg. Nickel250 Kg. 25010 Paise / Kg. Crudeoil100 Barrel 1001 Rs. NaturalGas1250mmbtu125010 Paise

National Commodity and Derivative Exchange of India (NCDEX)Its an exchange which basically deals in agri. commodity. It is based in Mumbai and as started its operation from 15th December 2003. Time: 10:00 AM to 5:00 PM. NameLot/ Trading unit P&L / 1 Rs. Tick Size Delivery Centre CHANA10 TONS / 10000 kg1001 Rs. DELHIGUARSEED10 TONS / 10000 kg1001 Rs. JODHPURRMSEED10 TONS / 10000 kg1000.05 Paise JAIPURSOYABEAN10 TONS / 10000 kg1000.05 Paise INDOREDHANIYA10 TONS / 10000 kg1001 Rs KOTAGUARGUM5 TONS / 5000 KG 501RsJODHPURTURMERIC5 TONS / 5000 KG 502 RsNIZAMABADJEERA3 TONS / 3000 KG 301 RsUNJHA(GUJ)PEPPER1 TON / 1000 KG 101 RsKOCHIREFINEDSOYAOIL5 TONS / 5000 KG 5000.05paiseINDOREMENTHAOIL360 KG 3600.10paiseCHANDOUSI(U.P)

Currency Market(traiding hours 9:00 am to 5:00pm)

CalculationGross Profit: (Selling Price Buying Price)*Quantity/Lot Size Brokerage: ((Buying price*Quantity/lot size*Brokerage) + (Selling price*Quantity/lot size*Brokerage)) / 100 Example: Buy SBIN 2000 shares above 300 targets 305 Brokerage 0.03% Gross Profit: (Sale price Buy Price)*Quantity = (305-300)*2000 GP = (5)*2000 =10000/- Brokerage Calculation: = ((300*2000*0.03) + (305*2000*0.03))/100 = (180) + (183) = (363) Net Profit = (10000-363) = Rs. 9637/-

100 shares 1000 priceSl NoChargeable ItemApplicable ChargesAmount1Brokerage0.1% or Rs.20/- whichever is lower20/-2Security Transaction Charges0.1% of the turnover100/-3Transaction Charges0.00325% of the turnover3.25/-4Service Tax12% of Brokerage + Transaction charges2.79/-5Education Cess2% of service tax0.0558/-6Higher education Cess1% of service tax0.0279/-7SEBI ChargesRs.20 per crore of transaction0.2/Total126.32/-

KYC (know your customer)NameMail-idAddressInvestmentPrevious experienceKYC form forwarded by company should be filled and duly signedScanned copy of Pan cardScanned copy of address proof