Exchange For Trading
Stock Exchange: Just like a vegetable market, exchanges act as a market where the stock buyers connect with stock sellers. There are two big stock exchanges in India- Bombay stock exchange (BSE) and National stock exchange (NSE).
National Stock Exchange (NSE): The National Stock Exchange (NSE) is a stock exchange located at Mumbai, India. It is the 10th largest stock exchange in the world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading. The NSE’s key index is the S&P CNX Nifty also called as NIFTY. Nifty index consist of 50 major stocks weighted by market capitalization. Nifty is the barometer on the NSE exchange.
Bombay Stock Exchange (BSE): The BSE is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange in Asia. The BSE has the largest number of listed companies in the world. It has also been cited as one of the world’s best performing stock market. As of December 2010, there are over 5,034 listed Indian companies and over 7700 scripts on the stock exchange. The Bombay Stock Exchange has a significant trading volume. The SENSEX is the index on BSE also called the “BSE 30”, is a widely used market index in India. Sensex consist of 30 major stocks weighted by market capitalization.
Instruments for Trading
Index: Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks. In India, there are two indexes namely SENSEX and NIFTY.
Stocks:It generally refers to buying and holding of shares of a company on a stock market by individuals/ firms in anticipation of income from dividends and capital gains, as the value of the stock rises.
Future: It is the financial instrument whose price depends on the underlying instrument. Underlying instrument can be stock, currency, commodity etc. It has expiry of one month. Every last Thursday it expires.
Options: It is the financial instrument whose price depends on the underlying instrument. There are two types of options, Call options (like buying stocks) and Put options (Like selling stocks)
Commodities:Product used for commerce that are traded on a separate, authorized commodities platform. Commodities include energy products, metal products, bullion, agricultural products and natural resources.
Forex Market: Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world’s currencies trade. The forex market is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion.
Bull market: This is a term used to describe the scenario of the market. A bull market is when the share prices are rising and the public is optimistic that the share price will continue to rise.
Bear Market: When the share prices are falling and the public is pessimistic about the stock market, and then it’s a bear market. The public is fearful and thinks that the market will continue to fall and hence, selling increases in this market.
Trading volume: It is the total number of shares being traded at a particular period of time..
Short selling: It is a practice where the trader sells share first (which he doesn’t even own at that time) and hope that the price of that share starts falling. He will make a profit by buying back those shares at the lower price. Overall, both selling and buying are done here, however, its sequence is opposite to the regular transactions to get the profit of the falling share prices.
Going long: This is buying the shares in expectations that the share price is going to increase. When a trader say I am “Going long…” or “Go long”, it indicates his interest in buying a particular share.
Average down: This is an approach that investors use to buy more shares when the share price starts falling. This results in an overall lower average price for that share. For example, you bought a stock at Rs 100. Then the stock price starts falling. You bought the stock again at Rs 80 and Rs 60. Hence, the average price of your investment will be lower i.e. Rs 80. This is the approach used in averaging down.
Market capitalization: It refers to the total rupee value of the company’s share. It is calculated by multiplying the total number of shares by its present market share price. It is used to define large cap, mid cap or small cap companies based on their market capitalization.
Types of Trading
Intraday Trading:When you buy and sell the share on the same day, then it is called intraday trading. Here the shares are not purchased for investing, but to get profits by harnessing the movement in the market.
Swing Trading: Swing Trading is a short-term trading method that can be used when trading stocks and options. Swing Trading positions typically last two to six days, but may last as long as two weeks.
Positional Trading: A position trader is someone who holds a position, usually stocks, for the long-term; from weeks to months, and even years. They are less concerned with short-term fluctuations and the news of the day unless it impacts the big picture behind the stock they are trading.
Types of order
Market order: When you want to buy/sell a share at the current market price, then you need to place a market order. For example, if the market price of ‘Tata Motors’ is Rs 425 and you are ready to buy the share at the same price, then you place a market order. Here, the order is executed instantaneously.
Limit Order: Limit order means to buy/sell a share with a limit price. If you want to buy/sell a share at a given price, then you place a limit order. For example, if the current market price of ‘Tata motors’ is Rs 425, however you want to buy it at Rs 420, then you need to place a limit order. When the market price of Tata motors falls to Rs 420, then the order is executed.
Stop Loss Orders – As the name indicates the stop loss orders are used to stop or limit the losses in the share market. Stop loss orders are limit price set by traders at which the order will automatically enter or exit the trade. The stop loss order is placed below the current market price of the stock to stop the loss in buy position and above the current market price to stop the loss in short sell position.
Cover Order: A Cover Order is an order which is placed along with a compulsory Stop Loss Order. In a Cover Order the buy/sell order can be a Limit/Market Order and is accompanied with a compulsory Stop Loss order, in a specified range. This Stop Loss Order cannot be cancelled. All open CO positions gets auto squared off before end of the day.
Bracket Order: In a BO you can place intraday buy/sell limit orders with a target and compulsory stop loss (with a trailing SL option) for a higher leverage. All open BO positions gets auto squared off before end of the day.
Good till cancellation (GTC) order: This order can be placed when an investor is willing to buy/sell the shares at a specific price and the order remains active till it is executed or canceled.
Day order: This order can be placed when an investor is willing to buy/sell shares on a particular day and the order gets automatically canceled if not fulfilled on that day.