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STOCK BROOKING - September 3rd, 2010

Stock Broking

There are 2 ways by which one can invest their money in stock market

1. Primary Market

2. Secondary Market

Primary market
  • Primary markets bring together buyers and sellers - either directly or through intermediaries - by providing an arena in which sellers’ investment propositions can be priced, brought to the marketplace, and sold to buyers.

  • In this context, the seller is called the issuer and the price of what’s sold is called the issue price.

  • It is the initial market for any item or service. It also signifies an initial market for a new stock issue.

  • The jargon also means a firm, trading market held in a security by a trader who performs the activities of a specialist by being ready to execute orders in that stock.

Secondary Market
  • Secondary Markets are the stock exchanges and the over-the-counter market.

  • Securities are first issued as a primary offering to the public.

  • When the securities are traded from that first holder to another, the issues trade in these secondary markets.

Top five shares traded at Bombay stock exchange are:

1. Tata Steel

2. Dr.reddy

3. Ranbaxy



Essential Information
  • Besides familiarity with the stock market, the transaction process, and having an account at a broker or sub-broker, knowledge of basic investment information is also important to making investment decisions.

  • In this section, you can read about the basics of investment that often appear in stock market reports and discussions.

1.Market information

Important data and information about the overall market situation that you often come across include:

Stock market index :-
  • There are a number of stock market indices but the most widely used is the SET Index, which calculates the average price of all listed shares weighted by the number of registered shares.

  • Thus, price movements of large capitalization stocks have a greater influence on the movement of the SET Index than price changes of small capitalization stocks.

  • Besides the SET Index , other stock price indices have been constructed to track market trends, for example the SET50 Index, Book Club Index, TISCO Price Index, and Sector Indices to track the price movements of individual sectors.

Market turnover:-

It's often quoted together with the SET Index to indicate how active the trading activities are. In a bullish market, turnover is high as investors trade actively.

2. Stock information

In addition to the market information above, it's essential to understand how to pick good stocks.

Here are some basic investment principles.

  • Stock price is an important factor to investors, as buying and selling influence stock price movements.

  • At the end of the day, investors like to know how their stocks fared. Did they close higher? Lower? And by how much?

  • The change in price of a stock also reflects the amount of money for investor decision-making whether to buy, sell, or hold. In stock valuation, price has to be considered in conjunction with other performance variables such as earnings per share and dividends.

  • Stock price is therefore only one factor in your initial investment consideration.

Price-Earnings Ratio (P/E Ratio): -
  • The ratio is derived by comparing the Close Price (P) with Earnings per share (E).

  • It is a measure of the stock's fundamental value.

  • P/E Ratio is calculated by dividing the Close Price (P) with Earnings per share (E).

P/E = Close price or market price (P)
12-month earnings per share (E)

  • P/E ratio tells you how many years it will take the company's earnings to add up to its stock price at the time of calculation.

  • For example, if the close price of stock ABC (P) is 100 Rs and its earnings per share (E) is 20 Rs, then its P/E Ratio equals 100/20 = 5.

  • That is, at the time of calculation, it will take only 5 years of company ABC's earnings to equal its stock price

  • A stock with low P/E ratio is preferable to one with a high P/E. Conversely, suppose stock DEF closes at 200 Rs and its earnings per share (E) is 20 Rs, its P/E Ratio equals 200/20 = 10.

  • At the time of calculation, it will take 10 years of company DEF's earnings to equal its stock price.

  • Comparing stock ABC with stock DEF, we can draw an initial conclusion that stock ABC is more attractive than stock DEF.

  • In brief, a low P/E stock has more earnings potential or is cheaper than a high P/E stock, considering its earnings ability.

  • Dividend Yield: Rate of dividend return, shown in percentage form.

  • A stock with a high Dividend Yield is more attractive because you get a Higher rate of return in the form of dividends.

The formula for calculating Dividend Yield is
Dividend Yield = Dividend x 100
Stock Price

For example, if stock ABC has a market price of 20 Rs and pays a 2 baht dividend, its dividend yield is
2 x 100 = 10%

Trading Volume: -
  • Trading volume or liquidity of a stock is important. It's easier to trade in/out of a stock with high liquidity or large trading volume.

  • It's difficult to buy a stock which has a low liquidity or low trading volume because there are few sellers.

  • And selling is difficult if there are few or no buyers when you want to sell because you urgently need the cash.

Financial Analysis:-
  • Analysis of a company's growth potential, stability, financial and management strengths, and profit potential for its investors.

  • Financial analysis is a rather complex exercise and can be left until you've mastered more basic investment knowledge.

  • Besides market conditions and individual stock factors, a myriad of other variables influence stock market and stock price movements Investors can follow them in various media reports

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