There are two methods to evaluate a stock before investing: Fundamental Analysis and Technical Analysis. Trade well and make wise decisions.
What is stock trading?
Stock trading involves buying and selling shares in any company you wish to trade. You can own a certain percentage of a company’s shares. Stock traders can also be called professionals or individuals who trade on the stock exchange for any financial institution. There are three main types of stock traders: uninformed traders (intuitive traders), informed traders (intuitive traders), and those who trade on the stock exchange for a financial firm. Additionally, individual stock trading, as well as institutional stock trading, are the main types of Stock Trading.
Two major exchanges exist in India:
- BSE (Bombay Stock Exchange).
- NSE (National Stock Exchange).
There are several types of share markets in India:
1. Primary share market:
This is where companies and businesses register. Companies can use this market to raise capital and funds by selling their stock to the public. A company can register to offer its shares to the public in this market for the first time. Initial Public Offering (IPO) is the process of first offering shares to the public.
2. Secondary Share Market:
This is where shares of the company can be traded. Once the IPO has been completed, traders can begin trading on prices that are governed by market movements.
How can you trade on the Stock Market?
In the past, you had to go to the broker to discuss the transaction you wanted to make. Everything is now digital, and trading can be done online:
How to Evaluate a Stock Before Investing–
You can use this tool to evaluate a stock:
With fundamental analysis, you can examine key factors such as GP Margin and Debt_-to-Equity Ratios, Returns On Equity, Earnings Yields, Interest Cover Ratios, Market Cap, and so on. These factors can give you great insight into stock prices.
Intraday trading requires technical analysis. This involves a brief examination of the market. You can also analyze factors such as RSI (Regarding Strenght Index), and Moving Average. You can use indicators, chart patterns, reports, trends, and charts for technical analysis. These will all help you analyze the stock’s movement in the market.
How are market returns calculated?
Market returns can be calculated using two main methods. These are:
Compounded Annual Growth Methodology (CAGM):
After taking into account the period, the returns are calculated. Market experts prefer this method.
Methodology for Absolute Returns:
Many variables can be used to calculate returns such as selling price, buying prices, returns and percentages.
What does Stock Trading look like in India?
A company that is listed on stock exchanges can issue stock that can be traded on the secondary market to reduce losses or increase profits. Brokerage firms and stockbrokers are responsible for the buying and selling of stocks listed on stock exchanges.
These stockbrokers are intermediaries between investors and stock exchanges. Your broker will also pass on the order to purchase shares to the exchange. The exchange will then place a buy order for the same shares.
Once the buyer and seller have been found, they will finalize the transaction. Your broker will also be informed by the stock exchange that your order has been confirmed. Your broker, who acts as a mediator, will send you this message later. The stock exchange will confirm both buyer and seller details to make sure that neither party defaults.
This allows the buyer to transfer ownership of the shares. The settlement cycle is the process of settling the transaction through the actual transfer ownership. The settlement of the trade should take place within T+2 days.
Indian Stock Market Pricing Mechanism-
Learning how to value a company is key to making money on the stock market. Knowing how to value a company will help you make great profits. It is important to know what the share price of the company is and how it is priced in India. Let’s look at an example to show how stocks are priced.
Let’s say you buy a book for Rs.100. One of your friends becomes impressed with the book and offers to buy it for Rs.150. What was the cost of the notebook? You can make Rs.150 by selling him the book. The offer might be rejected if you feel the book is less valuable than it is. Your friends may bid higher for the book.
Then, your three closest friends will offer you Rs.250, Rs.300, and Rs.315 for the book, respectively. What’s the cost of the notebook? The highest price for the book is Rs.315 You think the book you have is worth more so you decline these offers in hopes of getting better and better offers tomorrow.
The next day, a student brings a new book. It is shinier and has better pages. All your friends want to buy the book, which leads to a drop in the book’s value. Only a handful of people will now be willing to purchase your book at the current quoted price of Rs.315.
This is how supply and demand affect the price of shares on the stock exchange.
- Price rises when demand is greater than supply
- Price falls when there is more supply than demand
We discussed stock trading in conclusion. There are two methods to evaluate a stock before investing: Fundamental Analysis and Technical Analysis. Trade well and make wise decisions.