Here’s your first step guide to stock market!

Podcast Duration: 13:34
First step:
This is a conversation between a theatre actress (Amita) and her make up man (Devesh). They are both sitting in the green room. The actress notices injury marks on her make up man’s face and enquire about the same.

Amita: Arry Devesh, tumhare face be kya hua yeh? Chot kaise lagi?

Devesh: Kya batao madam, biwi ne maara. Itni mehnat karke bhi poora nahi padta uska pet. Bolti hai ghar chalaane ke liye aur paisa chahiye. Ab bataao, subah se shaam tak aapki naukri karta hun. Kahan se kamaa ke laaon aur paisa?

Amita: Pagal yeh problem chal rahi hai tumhare ghar mein, pehle bataana chaahiye tha na. Share market mein part time trading kyun nahi karte?

Devesh: Madam, shares bole toh???

Amita: Seedhi bhaasha mein, Shares bole toh small ownership piece of the company and is also called a stock or scrip.

A company issues shares by selling them to the general public through an Initial Public Offering or IPO. Once these shares have been sold, investors (or traders) can trade these stocks amongst themselves.

Devesh: You used the word IPO. What’s that? Is it similar to primary market? A friend mentioned it to me.

Amita: When a company introduces share sale for the first time, it is called IPO. Here, you are buying directly from the company issuing the shares.

However, there could be a case that your luck runs out and you are not allotted any share during an IPO (could happen because of huge demand and limited supply).

If you are still confident about the company, you can buy the same stock from the secondary market.
Bhuljo naa, jo shares bya market ma trade ta thyan, hue peron IPO thi kare peno market mein inda ayin.
Devesh: Trade through secondary market???

Amita: Secondary market manjhe stock exchange bhau! Basically a company can’t go door to door asking people if they want to buy or sell shares. Which is why a centralised market place is created in each country, which in India’s case is Bombay Stock Exchange or BSE (Asia’s oldest stock exchange) and National Stock Exchange or NSE (established in 1994).

It’s been observed over the years that NSE is more popular and see larger volume as compared to BSE. However, you can trade on any platform you like.

Before we move further, let us understand the market indices as well. The first is BSE Sensex, which is the weighted average of prices of 30 select stocks listed on the Bombay Stock Exchange. The weights are the market caps of the individual stocks.

Similarly NIFTY 50 is the weighted average of prices of 50 select stocks listed on the National Stock Exchange.

So next time you hear Sensex falls 500 points or NIFTY is down by 50 points, you know that the prices of certain stocks have fallen.

Devesh: But why do prices fall? Why can’t they just go up and up?

Amita: Wrong question at the right time, bidhu! Remember, last year onion was selling at Rs 100/kg and this year at Rs 20/kg. Why? Because last year the demand was high and supply was low while this year supply is in excess so the prices have fallen.

Similarly, stock prices fluctuate because of demand and supply imbalance. This imbalance is caused by various factors such as economy, concerned sector, company events etc. These imbalances make the investors reassess their expectations of the company profitability and hence make them either buy/sell.

Devesh: Hmmm...Now I think I am ready to go to NSE building and start trading.

Amita: Dada, etah cholbe naa! Just as you approach a broker for buying or renting a house, you have to approach a stock broker to open a demat account for you and only through that account, you will be able to transact in a stock.

To simplify, you can think of these brokers are licensed members of BSE or NSE. They are duly registered with the exchanges and act only as a mediator.

Whatever you buy or sell, they collect the money and deposit with the exchanges. For facilitating all these transactions, they charge a basic fee from you.

Devesh: Can you throw some more light on demat account?

Amita: Just like you open a bank account for all your financial transactions, stocks are traded through a demat account which you can open with any broker. Pricing, transaction charges etc vary from broker to broker. Which is why, do your research properly before opting for a stock broker (By the way, you can also check out our free course on how to choose a stock broker). The demat account is linked to your bank account. Toh bas, paise transfer karo aur utar jaao market mein (marwadi).

Devesh: Listen, it may sound cheap to you but still I would ask. What if I don’t have money and still want to buy a stock? Do these brokers also have a overdraft facility just like my bank?

Amita: Yes, that facility is there. Suppose you buy a stock today, the settlement happens in T+2 days (two days after the day you have placed the trade). Some brokers extend this to T+5, which means you can buy stocks with minimum margin money and pay up the entire amount in the next five days. Still need a reason to jump in the market?

Devesh: Lekin market mein utar ke karun kya?

Amita: Ippudu miru anni tigalapai kottaru!! Once you have a demat account in place, you can either buy a stock for a short term (even for 5 minutes) or for long term (say 50 years provided the company survives till then).

Buy at X and sell at 2X, simple. Even to do that, you need to be sure about the stocks bro. The company, management, profits, products, market share, you need to learn all about these before you actually buy a stock.

Seems difficult? It is but I am sure you would put in some efforts to protect your hard earned money.

Devesh: And how would I decide whether I have to trade or invest?

Amita: Simple hai naa! Invest for long term if you are looking for dividend as well as price appreciation. Take a position for couple of days if you are looking for price appreciation across days.

And mota bhai, tamey ek divas maa paisa banava maango cho, toh become a day trader. Devesh: Price appreciation is clear to me but what’s dividend?

Amita: Ooppsss! Sorry I missed that bit. Woh kahawaat suni hai naa, “Aam ke aam, guthliyo ke daam”! When you buy a stock, you become a part owner in the company and hence as and when a company earns handsome profits, it distributes a part of it to shareholder as dividend. If profits are low or negative, the company might not pay dividend.

Devesh: Dude, profits can be negative also, really? I am screwed if that happens!

Amita: Ama Anna, iduku dan vidham vidham ah stocks lah invest pannanum. For example if you have Rs 50,000, you can either choose to invest in one company or spread your risk by investing in couple of companies. The benefit is that even if company does not perform, others will take care of your portfolio.

This diversification would depend entirely on the returns you want and the risk you are willing to take for the same. And, you might get lucky if it’s a bull market!

Devesh: Ab bull kaha se aa gaya share market?

Amita: Kaha se aaya woh toh pataa nahi but since ages, a bull is only driving a positive market while a bad market is pulled down by a bear. If someone says market looks bullish for next week, it means it looks good. While a bearish trend means market is going to go down.

Devesh: This means I would be able to make money on every transaction during bullish market?

Amita: Paaji pher tey phatte chakk diyaange! And if you do that, don’t forget to call Warren Buffet and offer some tips to him as well since even he could not achieve 100% success rate. Otherwise, just remember one thing that irrespective of market condition, not 10 out of 10 transactions will make you money. Probably 6 out of them would do. But make sure that these 6 should take care of the losses you suffered on the other 4.

Devesh: So I have to keep a track on entire gamut of world news to ensure that I do not lose money?

Amita: Naah naah. Remember the dudes who are opening your demat accounts? Apart from all the services they provide you, a lot of them offer research reports which tell you about the stocks, sectors and major financial events. Why do they do that? Because they will make money only if you are making money!

Devesh: What all can be traded on stock exchanges apart from stocks?

Amita: Well, stocks comprise of what you call equity. The other things that you can trade in are derivatives, commodities and currencies.

Devesh: Wait...wait...wait. I tried buying a stock sometime back but it asked me to fill whether market order or limit order.

Amita: As you start buying the stock, you fill in quantity and then it asks you whether you have a price in mind for the stock or you want to buy at the current market price. So if you have an idea about the price, select Limit and add your price. Else, trust market and select Market order. And your order would be placed at the current market price. And since we are talking about placing order, do not forget to also state your stop-loss order (for traders only) which gets activated only when the price of the relevant share reaches a threshold price specified by the investor in the form of 'Stop Loss Trigger Price' (SLTP). Once the price of the stock surpasses the SLTP, the order becomes activated and then on behaves as a normal limit order.

Devesh: Yuppie, now I will buy/sell all day long!

Amita: You won’t be able to do that my friend because Indian exchanges allow you to trade or invest only between 9:15am to 3:30pm. You can pre-order a stock starting 9am. Lekin pre-order karogey kaise? Kaun sa stock lena hai, decide kar liya? Good if you have decided on the same. If not, here’s a course for you on How to scan stocks! After all, Padhega India tabhi toh Invest Karega India!!!