Note (Wrote it for Quora on 2nd Oct 2014)
As it literally mean, it is the market where you can buy the stock/share of a company, where stock means a small piece of ownership whose face value could be even a rupee or 10 (since question mentioned sensex and nifty, am taking the indian context). The buyer of the stock gets as much a ownership that much stock he buys, there by gets the right to future potential dividends on profit by the company. The seller of the stock, gets the money for more investment thereby expansion of the company. Thats the theory.
But practically speaking, 99% of buyers or sellers (exaggerated %?) buy or sell the stock to benefit from capital gains. Capital gains actually mean the rise in the market price of the stock after you buy the stock, provided you would realize the gain only on selling at the higher price, unless you sell even if the price goes up for the stock you own, its only potential gain and not the actual, vice versa for loss.
So who decides the price? how does it go up or down? Basically the buy or sell of a stock happens by bidding at the market or exchange through broker. Lets say i have a stock of 100 units of company A that I bought for Rs. 10000 (Rs 100 each), and am placing a sell request in the market after say 3 months at Rs 150 each (Rs 15000 total for 100 stock units), if the company is doing really good with great quarterly results and future forecast, then there might be some buyer B to buy the stock at this price, and the buyer B's hope(based on his understanding and analysis) is that the stock price might further go up and he buys in the hope of that future capital gains that he could earn. For now, i have earned a capital gains of around Rs 5k, its not exact Rs 5k because have to pay the brokerage and transaction charges (approx .5% of total transaction) to the broker and exchange through which I sold, Also the buyer paid a little more than Rs 15k to accommodate the same charges. When this transaction is successful, and if it is the latest successfully traded price, then this price is mentioned as the 'market price' or 'last traded price' by the exchange, which is what is displayed in the TV news channels and other brokerage channel and all tickers.
After a week say, if there is a negative news of the company, then the buyer B who bought it from me at Rs 150 each might want to sell it at the earliest. So he might quote even Rs 120 after seeing that the last traded price is around Rs 120 in the stock market (or exchange). And there could be another buyer C who might think this as a potential low price and might buy it. Otherwise if there is no buyer at Rs 120, the request might expire after the day or the request could be submitted again by B with a further reduced price say Rs 100 (depends on the situation in the market). So now, if the last request at Rs 100 went through then that becomes the latest stock price of the company A and the person B who sold had incurred a capital loss of around Rs 5k, but he did sell it to avoid further loss. On the contrary, owner of the stock, B, could have instead opted to wait for the stock to go up in the future, say may be after an year the stock price might go up, but that entirely depends on the current needs and situation of the owner of the stock and his understanding of the future growth of the stock.
Taking a decision of when to Sell and when to Buy is where the whole game is....
And in India, to my knowledge, we have 2 exchanges where we could buy or sell a stock, they are Bombay stock Exchange(BSE) and National Stock Exchange (NSE). And every exchange around the world, picks top 50(may be not exact number) performing stocks in general and also specific to industry like telecom or IT which are called as indexes that gives aggregated price in points. This index gives the representation of overall growth or decline of the stocks listed at exchange through the selected stocks at any point of time. Sensex is the index of top stocks at BSE and Nifty (NSE Fifty) at NSE.
And sample stock brokers are ICICI Direct, Axis Direct, Share Khan, Ventura One, ....etc, These brokers do the trading on behalf of us(buyer/seller) taking the commission for each transaction
Ok, havent said anything about day trading, that deserves a separate post and I havent anyways got any in depth knowledge on that.
Please do correct me had i mentioned anything wrong
As it literally mean, it is the market where you can buy the stock/share of a company, where stock means a small piece of ownership whose face value could be even a rupee or 10 (since question mentioned sensex and nifty, am taking the indian context). The buyer of the stock gets as much a ownership that much stock he buys, there by gets the right to future potential dividends on profit by the company. The seller of the stock, gets the money for more investment thereby expansion of the company. Thats the theory.
But practically speaking, 99% of buyers or sellers (exaggerated %?) buy or sell the stock to benefit from capital gains. Capital gains actually mean the rise in the market price of the stock after you buy the stock, provided you would realize the gain only on selling at the higher price, unless you sell even if the price goes up for the stock you own, its only potential gain and not the actual, vice versa for loss.
So who decides the price? how does it go up or down? Basically the buy or sell of a stock happens by bidding at the market or exchange through broker. Lets say i have a stock of 100 units of company A that I bought for Rs. 10000 (Rs 100 each), and am placing a sell request in the market after say 3 months at Rs 150 each (Rs 15000 total for 100 stock units), if the company is doing really good with great quarterly results and future forecast, then there might be some buyer B to buy the stock at this price, and the buyer B's hope(based on his understanding and analysis) is that the stock price might further go up and he buys in the hope of that future capital gains that he could earn. For now, i have earned a capital gains of around Rs 5k, its not exact Rs 5k because have to pay the brokerage and transaction charges (approx .5% of total transaction) to the broker and exchange through which I sold, Also the buyer paid a little more than Rs 15k to accommodate the same charges. When this transaction is successful, and if it is the latest successfully traded price, then this price is mentioned as the 'market price' or 'last traded price' by the exchange, which is what is displayed in the TV news channels and other brokerage channel and all tickers.
After a week say, if there is a negative news of the company, then the buyer B who bought it from me at Rs 150 each might want to sell it at the earliest. So he might quote even Rs 120 after seeing that the last traded price is around Rs 120 in the stock market (or exchange). And there could be another buyer C who might think this as a potential low price and might buy it. Otherwise if there is no buyer at Rs 120, the request might expire after the day or the request could be submitted again by B with a further reduced price say Rs 100 (depends on the situation in the market). So now, if the last request at Rs 100 went through then that becomes the latest stock price of the company A and the person B who sold had incurred a capital loss of around Rs 5k, but he did sell it to avoid further loss. On the contrary, owner of the stock, B, could have instead opted to wait for the stock to go up in the future, say may be after an year the stock price might go up, but that entirely depends on the current needs and situation of the owner of the stock and his understanding of the future growth of the stock.
Taking a decision of when to Sell and when to Buy is where the whole game is....
And in India, to my knowledge, we have 2 exchanges where we could buy or sell a stock, they are Bombay stock Exchange(BSE) and National Stock Exchange (NSE). And every exchange around the world, picks top 50(may be not exact number) performing stocks in general and also specific to industry like telecom or IT which are called as indexes that gives aggregated price in points. This index gives the representation of overall growth or decline of the stocks listed at exchange through the selected stocks at any point of time. Sensex is the index of top stocks at BSE and Nifty (NSE Fifty) at NSE.
And sample stock brokers are ICICI Direct, Axis Direct, Share Khan, Ventura One, ....etc, These brokers do the trading on behalf of us(buyer/seller) taking the commission for each transaction
Ok, havent said anything about day trading, that deserves a separate post and I havent anyways got any in depth knowledge on that.
Please do correct me had i mentioned anything wrong
