What is derivative?
- A derivative can be define as a financial instrument whose value depends on (or derives from) the values of other, more basic, underlying variables.
- Very often the variables underlying derivatives are the prices of traded assets. However, derivatives can be dependent on almost any variable.
- The best-known derivative assets are futures and options contracts.
- Derivatives are not all the same. Some are inherently speculative, while some are highly conservative.
Why Trade in Stock Market?
- You do not need a lot of money to start making money, unlike buying property and paying a monthly mortgage.
- It requires very minimal time to trade – unlike building a conventional business
- It’s ‘fast’ cash and allows for quick liquidation (You can convert it to cash easily, unlike selling a property or a business).
- It’s easy to learn how to make profit from the stock market.
But you need to have your basics clear. Unless you do….you will be wasting your time and losing money. You need to be crystal clear of each and every aspect of Investments, stock options, Stock Trading, Company, Shares, Dividend & Types of Shares, Debentures, Securities, Mutual Funds, IPO, Futures & Options, What does the Share Market consist of? Exchanges, Indices, SEBI, Analysis of Stocks – How to check on what to buy?, Trading Terms (Limit Order, Stop Loss, Put, Call, Booking Profit & Loss, Short & Long), Trading Options – Brokerage Houses etc.
Stock Market structure
- Company collects money (capital) from primary market by Initial Public Offering (IPO)
- Investors, buy those shares by paying offer price
- Company lists their name in a stock exchange, to give investors proper opportunity to buy or sell shares they own.
- A broker, like us, who is a member of stock exchange, can only buy or sell stocks on behalf of their client
- An investor who wants to liquidate his investment can do so by a broker in stock exchange
- A prospective buyer who missed the IPO can buy shares through a broker in stock exchange (if seller is available)
- Entire capital market process is highly regulated by SEBI
What Causes Stock Prices to Change?
Supply and Demand
Earnings and Expectations
Sentiments and Attitudes
Follow the Leader (volume)