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Transcript of CLASS-XI, CHAPTER-14
STOCK EXCHANGE EASY WAY TO EARN MONEY,EASY WAY TO LOOSE MONEY
CONCEPTS : A stock exchange can be defined as highly organized financial market for buying and selling stocks (Shares, Debentures, Bonds, etc), where price is determined through supply-demand mechanism.
According to Securities Contract (Regulation) Act, 1956, Stock exchange means an association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.
An organized market for buying and selling of listed securities. Listed securities are those shares, debentures, bonds, etc., which are included in the trading list of a recognized stock exchange.
INVESTING IN SHARES :
Represents ownership in a company.
Earn return in two ways : (i) price of shares rises overtime. (ii) Dividends are paid to shareholders.
Right to vote for directors and on certain issues.
Two types of shares : Equity Shares & Preference shares.
FEATURES : It is an organized securities market.
Component of capital market, i.e., market for long term finance.
Voluntary association of persons desirous of dealing in securities.
Only the members can trade in securities.
Dealings in stock exchange are under certain accepted code of conduct.
WHICH COMPANIES ONE CAN TRADE
Ones which are listed in the stock exchange.
ADR, GDR in foreign markets.
KINDS OF TRADING
DELIVERY BASED TRADING
INTRA-DAY TRADINGBuying and Selling on the same day
DELIVERY BASED TRADINGBuying and Selling are on different days
Brokerage will be higher than intra-day
Their will be minimum delivery charges13
Suppose, You buy the share on Monday. It will be delivered to you on Wednesday. Settlement period (T + 2) normally.14
STOCK EXCHANGE The stock exchange was established by East India company in 18th century . In India it was established in 1850 with 22 stock brokers opposite to town hall Bombay .This stock exchange is known as oldest stock exchange of Asia.
Initial members WERED.S.Prabhudas &companyJamnadas Morarjee Champak lal DevidasBrymohan Laxminarayan
BOMBAY STOCK EXCHANGE It is oldest and first stock exchange of India established in the year 1875. First it was started under baniyan tree opposite to town hall of Bombay by 22 stock brokers.
NATIONAL STOCK EXCHANGE OF INDIA(NSE OR NSEI)The NSE of India is the leading stock exchange of India, covering 370 cities and towns in thecountry. It was established in1994 as a TAX company. It was established by 21 leading financial institutions and banks like the IDBI,ICICI,IFCI,LIC,SBI,etc.
Features of NSEI Nation wide coverage i.e., investors from all over country Ring less i.e., it has no ring or trading floor Screen-based trading i.e., trading in this stock exchange is done electronically. Transparency, i.e., the use of computer screen for trading makes the dealings in securities transparent. Professionalization in trading, i.e., it brings professionalism in its functions
STRUCTURE OF SECURITIES MARKET
SECURITIES MARKETEQUITYDEBTDERRIVATIVESGOVT. SECURITIESCORPORATE DEBTMONEY MARKETFUTURESOPTIONS
PARTICIPANTS IN THE SECURITIES MARKET Regulators. CLB, RBI, SEBI, SEC. Stock Exchanges. Listed Securities. Brokers. Underwriters. Bankers to an issue. Credit Rating Agencies. Mutual Funds. Registrars. FIIs. Investment Bankers.
PRIMARY EQUITY MARKET Public Issue (Equity Shares)
Private Placement (Book Building)
BUYING & SELLING OF SHARES IN THE SECONDARY MARKET Locating a Broker.
Placing an order.
Execution of the order.
SPECULATION & SPECULATORS
Speculation is the practice of engaging in risky financial transactions in an attempt to profit from fluctuations in the market value of a financial instrument, rather than attempting to profit from the underlying financial attributes such as capital gains, interest or dividends.
Speculators who purchase or sell the shares or other securities without the transfer of shares or other securities and make profit from anticipated change in the prices.
TYPES OF SPECULATORS
He is a speculator who expects rise in prices of securities in future.
He buys securities with a view to sell them in future at a higher price.
A bull speculator tries to raise the price of securities by placing big purchase orders.
When the conditions in the stock exchange are dominated by bulls it is called Bullish market.
When the prices fall and bulls have to sell at a loss, it is called Bull Liquidation.
He is a speculator who expects a fall in prices.
He sells securities for future delivery.
He sells with a hope to buy the securities at a lower price before the date of delivery.
When the market is dominated by bears, it is called Bearish Market.
When the prices rise and bears have to make purchases, it is called Bear Covering.
BROKER and JOBBER
BROKER: He is one who acts as an intermidiary on behalf of others. A broker in a stock exchange is a commission agent who transacts business in securities on behalf of non members.
JOBBER: He is not allowed to deal with the public directly .He deals with brokers who are engaged with the investors . Thus, the securities is bought by the jobber from members and sells to members who are operating on the stock exchange as broker.
JOBBERBROKERA jobber is an independent dealer in securities, purchasing or selling securities on his own accountA jobber deals only with the brokers ,does not deal with the general publicA jobber earns profit from his operations i.e., buying and selling activitiesEach jobber specializes in certain group of securities
A broker deals with the jobber on behalf of his clients. in other words, a broker is a middleman between a jobber and clientsA broker is merely an agent, buying or selling securities on behalf of his clientsA broker gets only commission for his dealingsThe broker deals in all types of securitiesDIFFERENCES BETWEEN A JOBBER AND A BROKER
SPOT DELIVERY : Securities sold by a member on the stock exchange will be delivered on the spot or immediately after the transaction is made.
Settlement is done on the same day or on the next day.
The seller delivers the security and the buyer makes the payment on the date of contract or on the next day.
FORWARD DELIVERY : A forward delivery contract is one which has to be settled on the fixed settlement date.
Forward delivery contracts are generally made for speculative purposes.
In very few cases actual delivery of securities is made.