| Normal FAQ's About Stock / Share Market and their definitions
(BSE India / NSE India) |
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| Stock |
| In financial markets, stock is the capital raised by a corporation
through the issuance and distribution of shares.
A person or organisation which holds at least a partial share
of stocks is called a shareholder. The aggregate value of
a corporation's issued shares is its market capitalization.
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| Trading |
| A stock exchange is an organization that provides a marketplace
(either physical or virtual) for trading shares, bonds and warrants
and other financial products where investors (represented by
stock brokers) may buy and sell shares of a wide range of companies.
A company will usually list its shares by meeting and maintaining
the listing requirements of a particular stock exchange and
the different. |
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| Stock trader |
| A stock trader or a stock investor is an individual or firm
who buys and sells financial instruments (such as stocks or
bonds) in the financial markets. |
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| Stock Picking |
| Although many companies offer courses in stock picking, and
numerous experts report success through Technical Analysis and
Fundamental Analysis, many economists and academics state that
because of Efficient market theory it is unlikely that any amount
of analysis can help an investor make any gains above the stock
market itself. In a normal distribution of investors, many academics
believe that the richest are simply outliers in such a distribution
(e.g. in a game of chance, they have flipped heads twenty years
in a row). |
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| Stock trader versus stock investor |
| Stock investors purchase stocks with the intention of holding
for an extended period of time, usually several months to years.
They rely primarily on fundamental analysis for their investment
decisions and fully recognize stock shares as part-ownership
in the company. Many investors believe in the Buy-and-Hold strategy,
which as the name suggests, implies that investors will hold
stocks for the very long term, generally measured in years.
This strategy was made popular in the equity bull market of
the 1980s and 90s where buy-and-hold investors rode out short-term
market declines and volatility and continued to hold as the
market returned to its previous highs and beyond. |
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| Arbitrage Trading |
| Although it makes sense for some companies to raise capital
by offering stock on more than one exchange, in today's era
of electronic trading, there is limited opportunity for private
investors to make profit on pricing discrepancies between one
stock exchange and another. As such, arbitrage opportunities
disappear quickly due to the efficient nature of the market. |
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| Equity investment |
| Equity investment generally refers to the buying and holding
of shares of stock on a stock market by individuals and funds
in anticipation of income from dividends and capital gain as
the value of the stock rises. It also sometimes refers to the
acquisition of equity (ownership) participation in a private
(unlisted) company or a startup (a company being created or
newly created). When the investment is in infant companies,
it is referred to as venture capital investing and is generally
understood to be higher risk than investment in listed going-concern
situations. |
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| Analysis |
| To try to identify good shares to invest in, two main schools
of thought exist: technical analysis and fundamental analysis.
The former involves the study of the price history of a share(s)
and the price history of the stock market as a whole; technical
analysts have developed an array of indicators, some very complex,
that seek to tease useful information from the price and volume
series. Fundamental analysis involves study of all pertinent
information relevant to the stock and market in question in
an attempt to forecast future business and financial developments
including the likely trajectory of the share price(s) itself.
The fundamental information studied will include the annual
report and accounts, industry data (such as sales and order
trends) and study of the financial and economic environment
(e.g. the trend of interest rates). |
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| Technical analysis |
| Technical analysis, also known as charting, is the study of
the trading history (the price and volume over time) of any
type of security (stocks, commodities, etc.) to attempt to predict
future prices. In its purest form, technical analysis is concerned
only with the actual price behavior of the instrument, based
on the theory that all other factors affecting valuation will
be reflected in the price before an investor can become aware
of them through other channels. |
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| Fundamental analysis |
| Fundamental analysis of a business involves analyzing its
financial statements and health, its management and competitive
advantages, and its competitors and markets.
The objectives of the analysis may be to calculate credit
risk, to evaluate management and make internal business decisions,
or to determine the value of a company's stock and its probable
future. The analysis is performed on historical and present
data, but the objective is to predict future stock or business
performance.
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| Stock market |
A stock market is a market for the trading of company stock,
and derivatives of same; both of these are securities listed
on a stock exchange as well as those only traded privately.
The term 'the stock market' is a concept for the mechanism that
enables the trading of company stocks (collective shares), other
securities, and derivatives. Bonds are still traditionally traded
in an informal, over-the-counter market known as the bond market.
Commodities are traded in commodities markets, and derivatives
are traded in a variety of markets (but, like bonds, mostly
'over-the-counter'). |
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| Share (finance) |
| In finance a share is a unit of account for various financial
instruments including stocks, mutual funds, limited partnerships,
and REIT's. In British English, the usage of the word share
alone to refer solely to stocks is so common that it almost
replaces the word stock itself.
A share is one of a finite number of equal portions in the
capital of a company, entitling the owner to a proportion
of distributed, non-reinvested profits known as dividends
and to a portion of the value of the company in case of liquidation.
Shares can be voting or non-voting, meaning they either do
or do not carry the right to vote on the board of directors
and corporate policy. Whether this right exists often affects
the value of the share.
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| Shareholder |
| A shareholder or stockholder is an individual or company (including
a corporation) that legally owns one or more shares of stock
in a joint stock company. A company's shareholders collectively
own that company. Thus, such companies strive to enhance shareholder
value.
Stockholders are granted special privileges depending on
the class of stock, including the right to vote (usually one
vote per share owned) on matters such as elections to the
board of directors, the right to share in distributions of
the company's income, the right to purchase new shares issued
by the company, and the right to a company's assets during
a liquidation of the company. However, stockholder's rights
to a company's assets are subordinate to the rights of the
company's creditors. This means that stockholders typically
receive nothing if a company is liquidated after bankruptcy
(if the company had had enough to pay its creditors, it would
not have entered bankruptcy), although a stock may have value
after a bankruptcy if there is the possibility that the debts
of the company will be restructured.
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| Volatility |
| Volatility most frequently refers to the standard deviation
of the change in value of a financial instrument with a specific
time horizon. It is often used to quantify the risk of the instrument
over that time period. Volatility is typically expressed in
annualized terms, and it may either be an absolute number (5$)
or a fraction of the initial value (5%).
For a financial instrument whose price follows a Gaussian
random walk, or Wiener process, the volatility increases by
the square-root of time as time increases. Conceptually, this
is because there is an increasing probability that the instrument's
price will be farther away from the initial price as time
increases.
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