Stock Market Basics

The stock market allows companies to raise money and investors to buy or sell shares. Share prices change mainly because of demand and supply.

• A share represents part ownership in a company.
• New securities are issued in the primary market.
• Existing securities are traded in the secondary market.
• Investors generally use a trading account and a registered broker to place orders.
• A Demat account holds shares and other securities electronically.
• The BSE Sensex and NSE Nifty are widely followed Indian stock indices.

• Stock market investments involve risk, and prices may rise or fall.

  
  
  

The share market includes marketplaces where shares of publicly listed companies are bought and sold. These transactions take place through regulated stock exchanges.
The terms “stock market” and “share market” are often used in the same way. However, a stock exchange is the organised platform where securities are listed and traded.
In India, investors can buy and sell listed shares through recognised exchanges such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
The share market has two main parts: the primary market and the secondary market. Each serves a different purpose in the process of issuing and trading securities.
 

• Demat account: A Demat account holds shares and other securities in electronic form. It removes the need for physical share certificates.
• Bull market: A bull market is a period when prices generally rise and investor confidence is high.
• Bear market: A bear market is a period when prices generally fall and investor confidence is low.
• Portfolio: A portfolio is a collection of investments held by an individual or institution. It may include shares, bonds and other assets.
• Diversification: Diversification means spreading money across different investments. It can help reduce the effect of poor performance in a single investment.
• Market capitalisation: Market capitalisation is the total market value of a company’s outstanding shares. It is calculated by multiplying the current share price by the number of outstanding shares.
• Dividend: A dividend is a portion of a company’s profits that may be distributed to its shareholders.
• Blue-chip stocks: Blue-chip stocks are shares of established companies with a long operating history and a strong market presence.
• Volatility: Volatility shows how much the price of a security changes over a period. Higher volatility means that prices may move more sharply.
• Initial Public Offering (IPO): An IPO is the first public issue of a company’s shares.
• Broker: A broker is a registered intermediary who carries out buy and sell orders for investors.
• Bid and ask: The bid is the highest price a buyer is willing to pay. The ask is the lowest price a seller is willing to accept.
• P/E ratio or price-to-earnings ratio: The P/E ratio compares a company’s share price with its earnings per share. It is commonly used to understand how the market values the company’s earnings.
• Market order: A market order is an instruction to buy or sell a security at the best available market price. The final execution price may differ from the price visible when the order is placed.
• Limit order: A limit order is an instruction to buy or sell a security at a selected price or a more favourable price.
• Index: An index measures the performance of a selected group of securities. It may represent the overall market or a particular sector.
• ETF or exchange-traded fund: An ETF is an investment fund that may hold shares, bonds or other assets. Its units are traded on a stock exchange.
• Day trading: Day trading involves buying and selling financial instruments within the same trading day.
• Liquidation: Liquidation means converting assets into cash. It may happen when an investor sells investments or when a business closes and sells its assets.
• Resistance level: A resistance level is a price range where selling pressure may prevent a security’s price from rising further.
• Support level: A support level is a price range where buying interest may prevent a security’s price from falling further.
• Dividend yield: Dividend yield compares the annual dividend per share with the current market price of the share. It is generally shown as a percentage.
• Capital gains: Capital gains are profits earned when an investment is sold for more than its purchase price.
• Stock split: A stock split increases the number of outstanding shares while reducing the price per share in the same proportion. It does not directly change the company’s total market value.

• Earnings per share or EPS: EPS shows the portion of a company’s profit linked to each outstanding equity share. It is calculated by dividing eligible profit by the weighted average number of

  outstanding shares.
   

Stock indices are benchmarks that track the performance of a selected group of shares. These shares may represent the overall market or a specific sector.
In India, commonly followed indices include the BSE Sensex and NSE Nifty. Sector-specific indices include Nifty Bank and Nifty IT.
These indices help investors understand how a market segment or group of companies is performing. However, the movement of an index does not mean that every share in the market is moving in the same direction.
 

Understanding basic concepts such as shares, stock exchanges, primary and secondary markets, indices and common order types can help investors understand how the stock market works.
The Indian stock market provides a regulated platform for companies to raise capital and investors to trade securities. However, share prices can rise or fall. Investors should understand the risks, review available information and make decisions based on their financial goals.