Fundamentals on Share Market involves a wide array of topics :-
Present forms of Exchanges
Classification of Socks
Nature of Stock Markets' Buyer and Seller
Stock Market Analysis
For a novice, understanding the fundamentals on share market is a prerequisite.
Present Forms of Exchange
Shares in the Share Market are either traded through :-
(a) Stock Exchange
These are organized market places where stocks, bonds are other equivalents are traded between the buyers and sellers. Exchange acts as a counter-party to both the participants in case of any default. For example, NYSE, NASDAQ, NSE, NIKKEI, etc.
(b) Over-the -Counter (OTC)
These are not centralized exchanges. Here, the trade takes place through a network of dealers.
Classification of Stocks
Generally, stocks are of three types :-
a) Common Stock
It gives an ownership right to the holders of the stock and hence the share holders are entitled to the earnings of the company according to their stake.
Holders also get dividends on those stocks as and when given by the company.
b) Preferred Stock
These stocks also give ownership right to its holders.
Its holders enjoy the privilege of receiving dividends from the company in preference to any other common share holders.
c) Convertible Preferential Stocks
There is also another type of Stock called Convertible Preferential Stocks where the holders of these stocks have the option of converting them to common stocks of the issuing company.
The nature of participants of a stock market also differ according to their trading styles.
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Basically, they are :-
i. Traders
Traders continuously have a watch on the market during the trading hours and the moment they see any opportunity arising they pounce on it for scalping the profit out.
ii. Portfolio Managers
Portfolio Managers are actually investors who buy or sell securities for holding purposes with a view of medium and long term perspective.
In the stock market, there are two types of analysis based on which the traders and investors invest :-
I. Fundamental analysis
This looks into any type of relevant data (cash flow, return on assets, history of profits, etc.) associated with the company which could have an effect on the value and price of the stock.
II. Technical analysis
Technical analysis tries to evaluate the future trend of stock prices by using various statistical tools, charts, etc.