The Phi
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The Phi

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The basics of stock market — Part 1

Study time!

What are stocks & shares?

Let’s say that me and you start a new company called Axiom Private Limited. Me, you and 8 other friends of ours pool in the money that is needed for the initial funding. Me & you are the founders (or better said — ‘promoters’ in the stock market terminology) and other 8 friends of ours become the first investors of our company.

Together we achieve better and go farther
  1. A company issues a fixed number of stocks that circulate in the market via trading. No matter how many share holders the company would have but the number of stocks of a company in total will remain the same.
  2. The price of the stocks at the time of its issue becomes the face value of the stocks and this is constant until the promoters/the company decides to change. This change is usually done by what is known as stock split.
  3. Whatever the price gets listed in the trading index is the market value of the stocks. The stocks are bought or sold at market value. The profits that are distributed among the share holders in the form of dividends and bonuses are always calculated with respect to the face value.
  4. If the market value of the stocks is more than the face value of the stocks, it is said that the stocks is at a premium of whatever the difference amount is. If the market value is same as the face value of the stocks, it is said that the stocks is at par with the face value. If it is below then it is said that the stocks is at discount of whatever the difference amount is.

When do companies go public?

Now, let’s say that our company, Axiom Private Limited grows big and we need huge funding to expand the business. This is when we go public. We issue an IPO, Initial Public Offering.

Once company goes public, offers and bids start in the market & you can trade via broker

Who is a broker?

A broker is someone who is authorised or licensed to buy or sell stocks associated with an exchange. Stock broker can be a human or an online platform like Zerodha, ShareKhan, etc.

You can call your broker to place buy/sell orders. However, now there are digital trading platforms.

Market and trading

Indian market on a working day, opens at 9:00 AM and closes at 3:30 PM. The price of the stocks when the market opens is called the opening price. The price of the stocks when the market closes is called the closing price. Through the session, the stocks also hit two more values of importance which are the day’s highest price and the day’s lowest price.

A chart showing the bullish state of market where the stock price is rising
A chart showing the bearish state of market where the stock price is falling

How to choose what company to invest in?

This is always tricky! You would have certainly heard stories about the fall of empires that once ruled the business industries.

Remember what Holmes said? “When you have eliminated the impossible, whatever remains, however improbable, must be the truth”
  1. The balance sheet with their revenue, profits, debts, reserves and other asset details.
  2. The returns, dividend payout and bonus payout history.
  3. The growth chart of at least 5 years.
  4. Understand the company’s business and market.
  5. Compare with the competitors.
  6. Also, see their future prospects.

How to make profits?

Once you have chosen the company of your interest after the fundamental analysis, the question is how to make profits out of it. Profit clearly implies that you own a certain number of stocks that you sell at a higher price than what you bought at.

  • This whole theory is easier said than done.
  • Do you even know that the price at which you’re buying is the least? What is the guarantee that the price won’t fall further tomorrow?
Money is not solution for everything. But, money solves money problems! XD



The publication, ‘The Phi’ is a platform for sharing experience based knowledge in software development, trading, life, business, marketing, etc. Basically, anything that is fundamental to life to achieve inspiration, excellence and success.

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