6.1 – Public Limited company
Having understood the IPO process and the circumstances that lead a company to offer its shares to the public and raise funds, we are now set to explore the stock markets a step further.
Once a company becomes publicly traded, the company is obligated to disclose all information related to the company to the public. The shares of a public limited company are traded on the stock exchanges daily. There are a few reasons why market participants trade stocks. We will explore some of these reasons in this chapter.
6.2 – What is the stock market?
As we discussed earlier, the stock market is an electronic marketplace. Buyers and sellers electronically express their points of view in terms of trade.
For example, consider the current situation of Infosys. When writing this, Infosys faces a management succession issue, and most of the company’s senior-level executives are resigning. The leadership vacuum is weighing down the company’s reputation heavily. As a result, the stock price dropped to Rs.3,000 from Rs.3,500.
Assume there are two traders – A and B.
A’s view on Infosys – The stock price will likely go down further because the company will find it challenging to find a new CEO. If A trades from his point of view, he should be a seller of the Infosys stock.
However, B views the same situation differently and has a different point of view. According to her, the stock price of Infosys has overreacted to the succession issue, and soon the company will find a great leader. The stock price will eventually move up.
If B trades from her point of view, she should be a buyer of the Infosys stock.
So at, Rs.3000, A will be a seller, and B will be a buyer in Infosys.
Now both A and B will place orders to sell and buy the stocks respectively through their respective stock brokers. The stock broker routes it to the stock exchange. The stock exchange has to ensure that these two orders are matched and that the trade is executed. This is the primary job of the stock market – to facilitate the transactions between different market participants.
A stock market is where market participants can access any publicly listed company and trade from their point of view as long as other participants have an opposing point of view. After all, different opinions are what make a market.
6.3 – What moves the stock?
Let us continue with the Infosys example to understand how stocks move. Imagine you are a market participant tracking Infosys.
It is 10:00 AM Infosys is trading at Rs.3000 per share. The management makes a press statement that they have found a new CEO expected to steer the company to greater heights. They are confident that the newly appointed CEO will do good things for the company.
Two questions –
-
- How will the stock price of Infosys react to this news?
- If you were to place a trade on Infosys, what would it be? Would it be a buy or a sell?
The answer to the first question is quite simple; the news is positive, so the stock price will increase. Infosys had a leadership issue, and the company has fixed it. When positive announcements are made, market participants tend to buy the stock at any given price, which cascades into a stock price rally.
Let me illustrate this further :
| Sl No | Time | Last Traded Price | What price the seller wants | What does the buyer do? | New Last Trade Price |
|---|---|---|---|---|---|
| 01 | 10:00 | 3000 | 3002 | Buys | 3002 |
| 02 | 10:01 | 3002 | 3006 | Buys | 3006 |
| 03 | 10:03 | 3006 | 3011 | Buys | 3011 |
| 04 | 10:05 | 3011 | 3016 | Buys | 3016 |
Notice that the buyer is willing to pay whatever prices the seller wants; this is when the market is said to be bullish. In a bullish market, the prices tend to move up.
So as you can see, the stock price jumped 16 Rupees in a matter of 5 minutes. Though this is a fictional situation, it is a realistic and typical behavior of stocks. The stock price increases when the news is good or expected to be good.
In this particular case, the stock moves up because of two reasons. One, the leadership issue has been fixed, and two, there is also an expectation that the new CEO will steer the company to greater heights.
The answer to the second question is now quite simple; you buy Infosys stocks because there is good news surrounding the stock.
Now, moving forward on the same day, at 12:30 PM, ‘The National Association of Software & Services company’ (NASSCOM) makes a statement stating that the customer’s IT budget seems to have come down by 15%, which could have an impact on the industry in the future. For those unaware, NASSCOM is a trade association of Indian IT companies.
By 12:30 PM, let us assume Infosys is trading at 3030. Few questions for you…
-
- How does this new information impact Infosys?
- What would it be if you were to initiate a new trade with this information?
- What would happen to the other IT stocks in the market?
The answers to the above questions are quite simple. Before we answer these questions, let us analyze NASSCOM’s statement in more detail.
NASSCOM says that the IT budget is likely to shrink by 15%. This means IT companies’ revenues and profits will likely go down soon. This is not great news for the IT industry.
Let us now try and answer the above questions…
-
- Infosys is a leading IT major in the country and will react to this news. The reaction could be mixed because there was good news specific to Infosys earlier during the day. However, a 15% decline in revenue is a serious matter, and hence Infosys stocks are likely to trade lower.
- At 3030, if one were to initiate a new trade based on the new information, it would be a sell on Infosys.
- The information released by NASSCOM applies to the entire IT stocks and not just Infosys. Hence all IT companies are likely to witness selling pressure.
So as you notice, market participants react to news and events, and their reaction translates to price movements! This is what makes the stocks move.
At this stage, you may wonder what would happen to a company’s share price if there is no news. Will the stock price stay flat and not move at all? The answer is yes and no, depending on the company in focus.
For example, let us assume there is no news concerning two different companies…
-
- Reliance Industries Limited
- Shree Lakshmi Sugar Mills
As we all know, Reliance is one the largest companies in the country, and regardless of whether there is news or not, market participants would like to buy or sell the company’s shares, and therefore the price moves constantly.
The second company is relatively unknown and, therefore, may not attract market participants’ attention as there is no news or event surrounding this company. Under such circumstances, the stock price may not move, or even if it does, it may be very marginal.
To summarize, the price moves because of expectations of news and events. The news or events can be directly related to the company, industry, or the economy as a whole. For instance, the appointment of Narendra Modi as the Indian Prime Minister was perceived as positive news, and therefore the whole stock market moved.
In some cases, there would be no news, but still, the price could move due to the demand and supply situation.
6.4 – How does the stock get traded?
You have decided to buy 200 shares of Infosys at 3030 and hold on to it for one year. How does it work? What is the exact process of buying the stock? What happens after you buy it?
Systems work seamlessly to ensure your transactions go smoothly.
With your decision to buy Infosys, you need to log in to your trading account (provided by your stock broker) and place an order to buy Infosys. Once you place an order, the following details are validated –
-
- Details of your trading account through which you intend to buy Infosys shares.
- The price at which you intend to buy Infosys
- The number of shares you intend to buy
Before your broker transmits this order to the exchange, the broker has to ensure you have sufficient money to buy these shares. If yes, then this order hits the stock exchange. Once the order hits the market, the stock exchange (through their order matching algorithm) tries to find a seller who is willing to sell you 200 shares of Infosys at 3030.
Now the seller could be one person willing to sell the entire 200 shares at 3030, or it could be ten people selling 20 shares each, or two people selling 1 and 199 shares, respectively. The permutation and combination do not matter. From your perspective, all you need is 200 shares of Infosys at 3030, and you have placed an order for the same. The stock exchange ensures the shares are available to you as long as sellers are in the market.
Once the trade is executed, the shares will be electronically credited to your DEMAT account. Likewise, the shares will be electronically debited from the seller’s DEMAT account.
6.5 – What happens after you own stock?
After you buy the shares, the shares will reside in your DEMAT account. You are now a part owner of the company to the extent of your shareholding. To give you a perspective, if you own 200 shares of Infosys, you own 0.000035% of Infosys at the time of writing this chapter.
By owning the shares, you are entitled to corporate benefits like dividends, stock splits, bonuses, rights issues, voting rights, etc. We will explore all these shareholder privileges at a later stage.
6.6 – A note on the holding period
The holding period is the period you intend to hold the stock. You may be surprised that the holding period could be as short as a few minutes to as long as ‘forever.’ When the legendary investor Warren Buffet was asked what his favorite holding period was, he replied ‘forever.’
In the earlier example quoted in this chapter, we illustrated how Infosys stocks moved from 3000 to 3016 in 5 minutes. Well, this is not a bad return after all, for a 5 Minute holding period! If you are satisfied with it, you can close the trade and move on to find another opportunity. To remind you, this is very much possible in real markets. When things are hot, such moves are quite common.
6.7 – How to calculate returns?
Now, everything in markets boils down to one thing. Generating a reasonable rate of return! All past stock market sins are forgiven if your trade generates a good return. Returns are usually expressed in terms of annual yield. There are different kinds of returns that you need to be aware of. The following will give you a sense of what they are and how to calculate these returns.
Absolute Return – This is the return that your trade or investment generates in absolute terms. It helps you answer this question – I bought Infosys at 3030 and sold it at 3550. How much percentage return did I generate?
The formula to calculate is – [Ending Period Value / Starting Period Value – 1]*100
i.e. [3550/3030 -1] *100
= 0.1716 * 100
= 17.16%
A 17.6% is not a bad return at all!
Compounded Annual Growth Rate (CAGR) – An absolute return can be misleading if you want to compare two investments. CAGR helps you answer this question – I bought Infosys at 3030, held the stock for two years, and sold it at 3550. At what rate did my investment grow over the last two years?
CAGR factors in the time component, which we had ignored when we computed the absolute return.
The formula to calculate CAGR is…
Applying this to answer the question…
{[3550/3030]^(1/2) – 1} = 8.2%
This means the investment grew at a rate of 8.2% for two years. As of today, the bank fixed deposit market offers 5.5% with capital protection hence, 8.2% return looks ok compared to a fixed deposit.
So, always use CAGR to check returns over multiple years. Use absolute return when your time frame is for a year or lesser.
What if you bought Infosys at 3030 and sold it at 3550 within six months? In that case, you have generated 17.16% in 6 months, which translates to 34.32% (17.16% * 2) for the year.
So the point is if you have to compare returns, it’s best done when the return is expressed on an annualized basis.
6.8 – Where do you fit in?
Each market participant has a unique style of participating in the market. The style evolves as you progress as a participant and witness market cycles. The participation style is also defined by the risk you are willing to take in the market. Regardless of what you do, you can be categorized as a trader or investor.
A trader is a person who spots an opportunity and initiates the trade with an expectation of profitably exiting the trade at the earliest given opportunity. A trader usually has a short-term view of markets. Trader is alert and on their toes during market hours, constantly evaluating opportunities based on risk and reward. A trader is unbiased toward going long or going short. We will discuss what going long or short means at a later stage.
There are different types of traders :
-
- Day Trader – A day trader initiates and closes the position during the day. He does not carry forward trading positions overnight. A day trader is risk-averse and does not like taking an overnight risk. For example – Buy 100 shares of TCS at 2212 at 9:15 AM and sell it at 2220 at 3:20 PM, making a profit of Rs.800/- in this trade. A day trader usually trades 5 to 6 stocks per day, sometimes even more.
- Scalper – A type of day trader. A scalper usually trades very large shares and holds the stock for less time to make a small but quick profit. For example – a scalper buys 10,000 shares of TCS as 2212 at 9:15 and sells it 2212.1 at 9.16, ending up making 1000/- profit in this trade. On any given day, the scalper trades multiple times during the day. As you may have noticed, a scalp trader is highly risk-averse.
- Swing Trader – A swing trader holds on to the trade for a slightly longer; the duration can run anywhere between a few days to weeks. For example – Buy 100 shares of TCS at 2212 on 12th June and sell it at 2214 on 19th June.
Some of the successful traders are – George Soros, Ed Seykota, Paul Tudor, Micheal Steinhardt, Van K Tharp, Stanley Druckenmiller, and the late Rakesh Jhunjhunwala etc
An investor is a person who buys a stock expecting a significant appreciation in the stock. The investor is willing to wait for the investment to evolve. The typical holding period of investors usually runs into a few years. There are two popular types of investors.
-
- Growth Investors – The objective here is to identify companies expected to grow significantly because of emerging industry and macro trends. A classic example in the Indian context would be buying Hindustan Unilever, Infosys, and Gillette India back in 1990s. These companies witnessed huge growth because of the change in the industry landscape, creating massive wealth for their shareholders.
- Value Investors – The objective here is to identify good companies irrespective of whether they are in the growth or mature phase but beaten down significantly due to the short-term market sentiment, thereby making a great value buy. An example of this in recent times is stock tanking in the Covid crash of March 2020. Due to short-term negative sentiment, almost all the good stocks were beaten down significantly around March/April 2020, only to post a V-shaped recovery in the subsequent months.
A few successful investors are – Charlie Munger, Peter Lynch, Benjamin Graham, Thomas Rowe, Warren Buffett, John C Bogle, John Templeton, Mohnish Pabrai etc.
So what kind of market participant would you like to be?
Key takeaways from this chapter
-
- A stock market is where a trader or an investor can transact (buy, sell) in shares.
- A stock market is a place where the buyer and seller meet electronically
- Different opinions make a market
- The stock exchange electronically facilitates the transaction of buyers and sellers.
- News and events move the stock prices daily.
- Demand-supply mismatch also makes the stock prices move
- When you own a stock, you get corporate privileges like bonuses, dividends, rights, etc
- The holding period is defined as the period during which you hold your shares
- Use absolute returns when the holding period is one year or less. Use CAGR to identify the growth rate over multiple years
- Traders and investors differ on risk-taking ability and the holding period.
under 6.7 The formula to calculate CAGR is mentioned 3550/3030]^(1/2) – 1} = 8.2%, im unable to understand how we get this 8.2??
It is a straight forward calculation.
Ending Value is 3550
Beginning Value is 3030
No of years = 2
Formula is [Ending Value/Beginning Value] raised to the power of (1/Number of years) minus 1. Which is nothing but –
[3550/3030]^(1/2) – 1
=0.082 or when expressed in percentage terms is 8.2%
Or use the “rate” function in Excel instead of manually calculating with the CAGR formula on paper. In this example, the rate function would be =rate(2,,-3030,3550). If will give the same answer as the formula above.
Yup, I’ve never used Rate function…so was not sure about it.
The correct function in excel, for calculating CAGR is the XIRR function.
Syntax
XIRR(values, dates, [guess])
The XIRR function syntax has the following arguments:
## Values Required. A series of cash flows that corresponds to a schedule of payments in dates. The first payment is optional and corresponds to a cost or payment that occurs at the beginning of the investment. If the first value is a cost or payment, it must be a negative value. All succeeding payments are discounted based on a 365-day year. The series of values must contain at least one positive and one negative value.
## Dates Required. A schedule of payment dates that corresponds to the cash flow payments. Dates may occur in any order. Dates should be entered by using the DATE function, or as results of other formulas or functions. For example, use DATE(2008,5,23) for the 23rd day of May, 2008. Problems can occur if dates are entered as text. .
## Guess Optional. A number that you guess is close to the result of XIRR.
Thanks for sharing this, Nagesh!
Hi Karthik, can I have list that shows historical market time changes and ipo listing timings.
IPO timing is roughly around the market open. Back in the days, markets would open at 9:55 AM, then for a brief time it was at 9:30 AM, and finally moved to the current 9:15 AM slot. There have been no changes apart from this (at least for the last 12-13 years).
Hi
I am also at learning stage. What is this pre-opening time? How it works? Who buys and sells because we try to sell and buy order is rejected. Need to understand the concept for first 15 minutes.
Pre-opening is b/w 9:00 AM to 9:15 PM, a period of 15 minutes before the markets open. Traders can place their trades to buy and sell during this period. The collective bids and asks so collected in this way determine the opening price of the stock/index.
Simply Multiply the result by 100 & you will get to see the expected answer.
Another way to look at this is let say you got x% returns each year. 3550 3030
So, your amount after two year should be 3030 * (1 +x/100)^2 which is 3550..
(1 + x/100)^2 = 3550/3030
x = 100 * ((3550/3030)^(1/2) -1)
x = 8.214%
CAGR is simply x.
Hmm, dont you think is complicated? CAGR is one simple formula otherwise.
Thanks for making it easier to understand.
Happy learning, Sweta!
Thanks. Great initiative by Zerodha.
the formula for CAGR is quite complex.
i would recommend others to use the SAME formula in a simplified manner
FV=Pv*(1+r)to the power n (power of n is on 1+r)
Fv=future value
pv=present value
r=cagr
n=time period/no of years
in context to the example given above
FV=3550
PV=3030
n=2
cagr=missing.
hope it helps
The formula you have suggested helps in calculating the Future Value. However in order to calculate the CAGR, which the growth rate at which the investment is growing one has to apply the formula suggested in the tutorial.
Btw the formulas are essentially the same, it is just a matter of rearrangement 🙂
I find it easier 😀
In the above example of Infosys , and bad news from NASSCOM if all the people having its shares want to sell it and there are no buyers what happens?
Remember different opinions is what makes a market. Hence this will not happen (at least in liquid stocks).There will always be buyers and sellers in liquid stocks.
What happens in circuit?
Circuit is when the stock hits either the maximum or minimum price threshold for the day. This is when traders refer to it as “stock has hit the circuit”. You make be interested to note, that F&O stocks do not have a circuit limit.
If the news is good all around the market, no bad news and people will be buying Infosys stock (for eg.) than why would some sell the stock. Hard to understand, pls explain
Remember, news per se is relative. What I perceive as good news maybe be perceived as bad news by you.At every price point a market participant will have an opinion. So no matter what happens there will be opinions formed and as long as opinions are formed, markets function. For example when Modi was elected PM, everyone knew it was good news, but why were people reluctant to buy? Like wise in individual stocks.
I agree with you that there is a difference in everyone’s perception but just wanted to understand that if there is a new that Infosys gets a big order than obviously people will buy that share and only from those who are selling it. So was just asking what can be the reason for some negativity about that share (other than people who want money n are selling it coz buyers are paying)
In fact that is the only reason. When good news hits the market people want to buy. When they are eager to buy they are willing to pay any price, hence the stock price keeps going up (think about it). So the sellers see this as an opportunity to get attractive prices for the shares that they already own. The point I’m trying to make is – for any news there will be both buyers and sellers on the news. This is how markets function, and will continue to function.
Hi Chandan. I’ll try and explain to you the difference in perception of a stock with the help of an example which I find very interesting and relevant for this thread. Long back when Mark Cuban was a budding entrepreneur he created Broadcast.com. Broadcast.com used to broadcast audio commentary of events such as American football, basketball, fashion shows, etc. over the internet which could be heard by anyone with an internet connection across the globe. Think about listening to the commentary of cricket world cup finals between India and West Indies in 1983 over the internet. It was something big at the time and caught the eye of many tech giants. Cuban made a strong selling pitch to one such giant, Yahoo. Yahoo bought Broadcast for staggering $5.6 billion. Now as an investor or a trader of stocks of Yahoo this move would be a leap towards big things (read: Positive news) and traders would buy more of Yahoo stocks. While a tech analyst would have suggested otherwise (read: Negative news). The reason being Yahoo didn’t have the capability to integrate Broadcast with their own system and that could be a struggle for Yahoo. And that’s exactly what showed in the later term of business at Yahoo. Yahoo failed terribly with their billion dollar acquisition. Broadcast, as unique as it was, did not find a match with Yahoo. This was just the start of Yahoo going down. Because Yahoo was so focused on integrating and developing Broadcast they took their eyes off their core business, Search. This gave an opportunity to an underdog to rise in the Search market. You know who I’m referring to? I am sure you’d have guessed. Google. I don’t know if Google traded publically at the time when this happened. But if I was a trader that time, after knowing that the Yahoo’s no longer focusing on Search, the first thing I would have done would buy some Google stocks because Google was trying to make it big in the Search market. And with one competitor out of the race things looked bright for Google. All about perception.
Thanks for that, as you said – its all about perception 🙂
Great explanation Ashutosh Pohary
Nice explained Ashutosh
Thanks for the to the point explanation.
And Karthik, thanks for such an initiative, helping us lot to unfold all doubts and curiosities about stock market.
Glad to note that, happy learning 🙂
I understand what you want to ask. The thing is as given in tutorial also, there are different type of participant – trader and investor. Lets concentrate on trader, now we have three type of trader – day trader, scalper and swing trader. In a highly liquid stock, you will find scalper also there. Now what he will do, he will buy sell, sell buy, buy sell, sell buy. Irrespective of fundamental news, he will see momentary technical and transact. Hence he is looking after only 10-20 paise. Now other say investor or swing trader/ day trader will find scalper there to transact with him.
Karthik, I think Chandan has a valid point here and his I think his query still remains unaddressed.
1.We see some examples where a stock is traded with ‘only buyers’ OR ‘only sellers’ e.g on moneycontrol. What does this exactly mean. 2.Also, if a there is a heavy buying on a particular stock, how would there be enough sellers to it?
3.What happens when there is more selling than buying or vise a versa. Does the order get executed ? fully or partially?
Got it. See, assume there only 500 shares in the market, and there is some good news about this stock. Assume I own 50 out of the 500 shares, which I have bought at 100. Now because of this good news people are willing to pay 120 for this stock…so I see this as an opportunity to sell my 50 shares…which I do, price goes to 120, at 120, some one else is willing to pay 125 for the share…and hence if you own 100 shares you maybe willing to sell it. This continues to a point where there are people willing to buy the shares but there could be no one willing to sell…then the stock gets frozen as there are only buyers, no sellers. Likewise if the opposite happens there will be only sellers, no buyers. This usually happens where there is excess demand/supply for the stock and the public float in the market is very little.
However this may not happen on a large stock like say ITC or Reliance as there is so much liquidity that it is really difficult for the stock to get frozen. This is pretty much like a vegetable market…there could be a totally 15kgs of Onions in the market (supply)…if the demand is for 15 kgs, then there is a balance…but if the demand is for 20 kgs, then there is heavy buying, likewise if the demand only for 10 kgs, there is heavy selling.
But if that share’s CMP is 100, then buyer would buy only at that price……how could he pay 120…!!!!
and even if he willing to pay any price(like 120 here), then how can BSE/NSE would know that…!!!!!
You place the order via a limit order and thats how the exchanges will know what price you are willing to transact at 🙂
And looking at our limit will NSE/BSE increase the stock price.?
Also does actual growth or profit increase the stock price if suppose the sentiment part due to good/bad news is not considered??
Nah, NSE/BSE is just the market, they don’t play a role in the price increase. Increase/decrease in price is a function of the market sentiment.
Many thanks Karthik.
Most welcome 🙂
i will join u r course
Sagar, there is no course as such. Everything is put on Varsity for free, you can read through it whenever you want. If you have any questions then leave a query and one of us will try and answer the same for you.
I couldn’t understand 1 thing. In the process of trading of shares in the secondary market, suppose the price of the share has gone up. The promoters & the holders will be definately get benefit from this price escallation but how the company is benefitted due to increase in share price?
Yes, the company also benefits since the market valuation of the company increases.
But afterall it is for money. So how does the company gets profit/money if stock price is increased?
The promoters hold the shares, so if the stock price goes up, so would the wealth of the promoters.
I khow it’s a fool question , but i want to know how from rise & fall of shares, company gets money.? When people buy they earn/loose money buy selling. But how company gets profit& what is the procedure for comp.to get money from share market? Also this blog is too good, why dont you make a book of it, &sell to make ur advtsmt? I no, this way u wont get customers’ numbers, but you can still connect with pepl.using whatsapp help service.
We are in fact converting the content in to PDF formats..so the same should be out soon 🙂
1) Companies benefit when the go public in the primary market – so this is when they benefit the maximum as they raise public money via an IPO
2) The day to day fluctuations in the secondary does not really matter to the compnay
So Why would companies like Infosys and Reliance care about their stock price if they don’t gonna get any profit as they couldn’t go for IPO.
Like I said, the promoters and their investors net-worth are linked to the share price of the company. So they need to ensure their company does well and the stock price increase.
Anyone who buys a share holds a part of the company. So if company is not doing well it also means that his/her share (the part that they own, as an example 0.000035% holding in infy in section 6.5) is also not doing well and similarly if the company is doing well then my share is also doing well. Thus inherently stock price is quite linked with company performance of which him/her holds a share.
Thats right, Karthik. I’m not sure if I’m missing the query in your comment.
If the share prices go up the evaluation of the company is higher, which is beneficial to the company in following ways (may be more ways too):
1. If any of the promoters, Investors or stakeholders wants to liquidify his stakes (partially or fully), he gets more value.
2. With higher evaluation, it would be tougher for competitors to take over the company or out the company in the mkt.
3. Company is better ranked on many of the factors in its segment.
SO is The Price Displayed on the Trading Screen is Last Traded Price?
If Yes!, Then if LTP is 100rs and some one places an order to sell at 200rs and on the other hand his friend places an order to buy at 200rs and the trade gets executed, then will the price of stock rise to 200rs?
Technically yes that is how it works….but exchanges have systems and checks in place to track such abnormal price increase.
How much can one rely on the LTP? Has SEBI Regularised it? coz if there are such instances of over increase or decrease in LTP then it would cause havoc! Have you experienced something like this before?
By LTP you mean last traded price??
Are bid and ask prices same or different
No, they are different as explained here – https://zerodha.com/varsity/chapter/the-trading-terminal/
Appreciate your prompt reply, Can you please elaborate on how does exchanges prevent such activities?
Also Wanted to know whether while placing a limit order, is there any restriction on the amount you can deviate from the market price?
Every stock outside the derivative basket has a price limit within which it can move. The maximum a stock can move for the given day is 20% …so based on the individual stock’s volumes, volatility etc limits are set – for example a certain stock can move anywhere between -5% to +5%…while another stocks can move between -10% to +10%. So max for any stock is -20% to +20%. However stocks in the derivative segments do not have such restriction. They can move by any extent. Keeping this in perspective I guess its always safe to place limit orders within -5 t +5 %. However getting a fill at such deviations maybe a challenge.
I have a doubt. How can people make losses in the market? Coz people can buy stock and they can hold and sell whenever the price of the stockgoes higher. Right?
Its easier said than done :). A wise man once said “Markets can stay irrational longer than you can stay solvent”.
Hi Karthik,
I do agree with Rishubh , Could you please try to explain this with an example ?
Well, this is based on the assumption that one day the price of the stock will eventually raise and until then you have the staying power. Consider stocks like Reliance Power, Suzlon, JP Associates, IVRCL, GMR, Unitech….investors in these stocks are yet to see gains and its already been many many many years.
as you said the loss will be there in stock market until the staying power! so i have an a doubt that what should we consider here the staying power as shares or share price, investment ??
can you explain about the investment how do we really invest based on what either company capital, or share which we buy, and when we can come out from the market ?
plz give me clarity for each one
It is a combination of your risk appetite and the available cash. Everything about investments is discussed here – https://zerodha.com/varsity/module/fundamental-analysis/
Really this platform is being used as an effective brainstorming technique. Different perceptions of varied investors can be understood , discussed and a final conclusion can be drawn.
Really appreciate Karthik for quick relplies and discussions.
Thank you Ram!
Happy learning.
Got a question sir.
I saw the volume section,100+100=100 . If im selling the shares,then you are buying.What about the beginning ,when the company just gets into the stock market and decides to sell its shares to get money.In the beginning when noone owns its shares.At that time,if i hit buy,will i be buying the stocks directly from the company itself? (As there is no individual person selling them).
And,i googled it a few times but couldnt get a satisfactory answer.But mostly websites says,when im making profits in the market,someone is losing money.His loses makes my profits.Consider that beginning situation or a situation when everyone is buying and noone is selling.Stocks are going up and EVERYONE is buying.Obviously,they are making profits and noone is losing money as noone is selling.So where does the profit money comes from? From the company itself?
IN SIMPLE WORDS,if i WIN,then will i have to make sure that SOMEONE IS LOSING? Do all the profits come from the losing ppl? Or do my profits also come from COMPANY’s profits(As it is selling its products).
When the company debuts its shares on the stock exchange they opt for the IPO route. You can read about IPOs here http://zerodha.com/varsity/chapter/the-ipo-markets-part-1/
When a company is doing IPO, basically the company is selling its shares (in large quantities) to the public (buyers). Once the public buys these shares then it gets traded from one person to another. Also, the concept of one person winning and the other person losing is applicable to derivatives markets and not really the spot markets.
Is there any other way ,company can hit stock market rather than IPO? if yes then please give such example of those companies.
Sometimes the IPO can be forced upon by virtue of a corporate action like a merger, amalgamation etc. Will try and share a few examples.
In an situation trader intended to buy 1000 shares but sellers in the market are selling only 750 shares, then what will happen to the remaining 250 shares?
Balance 250 will remain pending till it gets filled.
Is this the only reason why I sometime see my order status as ‘Partially Executed’? Or is there any other reason as well?
Yup, this is invariably the reason.
Excellent Initiative!!
Thank you 🙂
how much time does it take for a buyer to buy from the no.of shares
Depends on the liquidity…for example stocks like Infosys, Reliance, or Nifty futures etc you get it the moment you place an order (but do make sure the price is close to the bid-ask).
What do u mean by the liquidity? And how do we know how much liquidity a stock has in the mkt?
I’d suggest you check section 9.2 – https://zerodha.com/varsity/chapter/nifty-futures/
Suppose I place an order to buy 100 shares of a company. For the sake of argument lets say there are not sellers that day. What happens to my order right after the Stock Exchange close? Will my order persist and possibly be fulfilled next day in case there are sellers? Or will it expire?
Also can I retract my order after I place it but before it is fulfilled?
If the order is not full filled then the order by end of day then it wont be carried forward for the next day. All pending orders are cancelled by end of day. Which means you will have to place a fresh order the next day.
Yes you can modify your order before it gets fulfilled. No problem with that.
At 20% CAGR,stock price would increase to very high levels in 20 or more years.Then how would they still be affordable to the public?
Well, thanks to corporate actions like splits,bonus etc :). Having said that 20% CAGR for 20 years is not an easy return to achieve!
HI,
Very nice article!
I have a very basic question, once IPO is is given the share started trading in secondary market..And in secondary market there are 2 types of people i.e. Buyer and Seller. If Seller is selling infosys share @3030 rs and buyer is buying it at same price…suppose now buyer wann to sell it @3050 when it goes up to another buyer…In this case how company is getting money from these trades? or it is just once share is trading in secondary market….only buyer and seller are responsible for profit and sell?
Can you please elaborate if share price goes up or down how companys contribution in this and how valuation calculated?
Thanks,
Deepali
Companies does not benefit much from day to day variation in stock price movements. If the stock price moves up, the shareholders (including promoter’s) wealth goes up …and if price moves down the shareholder’s wealth comes down.
Hi Karthik,
Thank you first of all very much for this valuable guide, its by far the best when it comes to simplicity.
I have been wanting to ask this question right from the time I started thinking about trading. In this article, you have mentioned about stock price movement, what makes it move. But I still didn’t understand, how the movement happens… for example the buyer or the seller doesn’t have the option to change the price of the stock right, if ABC stock shows as Rs. 50/per share and the during the day it someone wants to buy or sell when it is at Rs. 50, then according to my understanding, the person trying to buy or sell will only be able to sell as to what is shown on Rs. 50. So how does it start moving up or down based on demand in market, if we can’t change the price on our trading tools.
I hope I have not confused you
Krishna – I’m glad you liked Zerodha Varsity 🙂
As far as your query goes – if ABC is at 50, then it is not necessary for you to buy it at 50. You can always put a limit order at 49 and hope to buy it at that price. Limit order is a feature on your trading terminal using which you can specify the price you want to transact. Now if someone else is desperate to sell it and opts to sell it at 49, then it would match your buy order at 49 and therefore in the whole process the price would have moved by 1 point i.e from 50 to 49.
Now here is the thing you need to remember – on a day to day basis prices moves based on demand and supply. Demand and supply is a function of greed and fear (both a form of desperation)..and as long as markets are open these human emotions will continue to influence the stock prices, and therefore the stock price moves.
Thank you very much for that Karthik… I have always wondered what makes the price go up and down, I thought there was some software which was doing it based on some criteria. I never knew that it was the people who are buying and selling the stocks that make the price go up and down.
End of the day markets are driven by human emotions Krishan 🙂
karthik do you have a youtube channel.
Varsity does not have, but there is a Zerodha youtube channel – https://www.youtube.com/user/zerodhaonline
I have seen some videos of zerodha on youtube, varsity explains the topics in a very systematic and easy manner but it would be more easy if you broadcast the videos on youtube. Thanks for such a nice and easily accessible platform.
Thanks, will try and put up the videos sometime in the future.
Hi kartik.
Thank you for developing such a helpful platform for new traders like me.I am in process of opening account with zerodha.
I have few queries. What is meaning of derivative trading. and why there is so much of price difference in shares of companies like lnt shares around 1300-1500 AND ntpc at 150-250 and few companies even below 100.
Ashwini – glad to know you liked Zerodha’s learning platform.
If you are new to derivatives, then I would suggest you start here – http://zerodha.com/varsity/module/futures-trading/
The difference in share price depends on many thing and you cant really compare the Rupee value of shares of two different companies.
I am planning for start trading in F &O from coming week onwards. I donot know anything about put and call options. Can you guide with example please. I have already account with you and doing very good volumes and my account id is dn 1456
Good luck. Have you checked out the module on Options? Everything is explained here – http://zerodha.com/varsity/module/option-theory/
please guide me in put and call options with eg. I want to start F & O from next week onwards
http://zerodha.com/varsity/module/option-theory/
WANT TO KNOW HOWTO STUDY RSI AND DECIDE ABOUT WHETHER TO BUY OR SELL IN INTRA DAY TRADE. INCURRED HEAVY LOSSES IN INTRA DAY. WHICH FACTORS INFLUENCE THE SCRIPTO BUY OR SELL IN INTRA DAY?
All about RSI here – http://zerodha.com/varsity/chapter/indicators-part-1/
Hello Sir,
I opened an account with Zerodha and will start with options. I have gone through the articles provided on Options and they provided great deal of insight. However, these days i was wondering whether i can buy(read about ETF’s) gold just like a share/stock and redeem with real gold? I tried to find over the net but in vain. Any inputs from your end will be greatly appreciated.
This should help – http://zerodha.com/z-connect/queries/etf-exchange-traded-funds
Thank you Sir.Can i buy E-Gold through zerodha? if yes, how do i but it?
Yes you can buy e-gold (Goldbees). I would suggest you call our support line for the exact details.
Hello sir…. please explain me given image i have sent attached .png file
here icici securities advice sell of “eClerx Servi ” and Targt of 1 year.
how can i sell today and buy after 1 year to settle… is it possible ?
This is not really a trading call. They mean to say that their outlook on the stock is bearish…hence they are advising clients to sell from their Demat account. Also if you do not have an account with Zerodha yet, maybe you should consider one 🙂
https://zerodha.com/open-account
Thanks for prompt response………..
i’m new to Trading.
So they mean to say this stock is bearish for one year and don’t jump into it.
i misunderstood as settlement like option & future trading.
I have acount with Zerodha Only…….
but zerodha not provide any research / advice … so i follow icici direct and agnel broking advice. but trade with zerodha only.
Yes, Zerodha does not provide research but provides everything else apart that. In fact we provide all tools (including Varsity) to empower you to become a research unit yourself and not really depend on other analysts.
Good luck.
thumbs up to that !
Cheers!
Hi Karthik,
I would like to appreciate you for the efforts you have taken to help the beginners. Thank you very much. This article was very elaborate but still I have a doubt sir. Please tell me how the company gets benefited from stock markets after 2 years of issuing IPO(in terms of money). Having said that day to day market does not really affect company,this doubt originated.Thanking you in advance.
After the IPO, the worth of the promoters shares are also linked to the price of the stock. Stock price goes up only if the company makes progress…higher the stock price then the worth of the promoters also goes up. So it does make sense for the company to ensure they do the right things so that the stock price grows steadily.
there are a few “LTD.” companies whose stock is neither listed on NSE /BSE .
eg. GOEL SCIENTIFIC GLASS LTD. , etc etc
how is this possible ?
since the stock is not listed on exchange , how to buy stock of these kind of companies ?
‘LTD’ means a company whose owners are legally responsible for its debts only to the extent of the amount of capital they invested. Such companies can be listed or unlisted. However all listed companies are LTD in nature.
so if the invest capital is lets say 1 crore in 2007 , for 1 lac shares of rs.100 each .
in 2015 share valuation becomes rs. 300, the legal obligation towards debt will stay same 1 crore or the new share valuation 3 crore ?
what happens when share valuation decreases to lets rs.70 , the new legal debt. obligation stays same 1 crore or reduces to 70 lacs ?
Sorry, I’m unable to understand the context here. Can you elaborate please?
May be a silly question: can I buy an instrument (say equity) at a price higher than the market price? if so, will it increase the market price of the instrument? I know that it is possible to place an order that the broker will execute if the price strikes a particular point but that still means buying the instrument at market price at a later point in time when the market price reaches the target price. Probably in real life no one would like to buy an instrument at a price higher than the market price – just wanted to know if this is possible.
No, this wont happen even if you place an order to buy at a higher price you will get it at the best buying price in the market.
This is very nice and easily the most accessible collection of materials I’ve found so far. Thank you. My feedback/request is to list recommendations to good texts, bloggers/tweeters to follow etc.
Glad you liked it Keshav..will try and do this sometime.
Hi Sir,
Suppose I place an order(buy or sell) for 100 rs using ‘limit’ option in equity, will the order executed exactly for 100 rs or is there possibility of any change in executable price?
Limit order will trigger only when it hits the price you’ve set….not any other price.
Thanks so much…
Suppose a share is trading at 100.75.I placed a limit order to buy share at 100.60. But a little later suddenly share price jumps directly to 100.50. Will my trade would get excuted or not as price is being not matched in above situation ?
If the jump is sudden, then you may not get filled. It’s always good to double check the fill.
Karthik, please correct me if I’m wrong. What I understand from limit order is to buy at 100.6/- or less in this example.
No, limit means you are limiting the price of the transaction to a certain price. Nothing above or below that price.
What happens if I have to buy a stock but no one is willing to sell it at that price on the stock exchange maybe because the stock is about to rise.My question is how price of stock increases, is it the buyer who increases the bid or does the seller asks for a higher bid or the stock exchange handles the issue?For example I want to buy a stock of XYZ company at Rs. 56 but there no one is willing to sell it for Rs.56.How will this transaction go through?
Atul – suggest you read through section 6.3 here – http://zerodha.com/varsity/chapter/the-stock-markets/
Also, if you want to buy a stock at a particular price but there are no sellers, then the transaction will not really go through.
Great work..:)
1 Could you explain any situation in which seller would be ready to sell his/her shares at price lesser than listed price?
2 Situation in which buyer would be ready to buy shares at higher price than listed price?
Novice..Ignore if they do not make sense..:)
Well, the price is market determined…even if you want to sell for a lesser price (for example share is traded at 75, but you want to sell for 65 or buy for 95) then it wont happen. You will get a price in and around 75…this is valid as long as you route the transaction via markets.
sir, as u said in given example that 8.2% CAGR, does that mean that for 1st year i got 8.2% and second year another 8.2% i.e a total of 16.2% in 02 years??
CAGR is an average rate which indicates the growth year on year.
doesn’t it then mean that in first year 8.2% rate of return and second year 8.2% which makes the rate of return as 16.4% in two years on my principle amount. kindly clarify.thanks and sorry for my foolish question
No, CAGR of 8.2% means that the invested amount is growing at an average rate of 8.2%. However if you look at the exact yearly returns it could be different…year one could be 20%, year two could be -2.5%, year 3 could be 10% so on and so forth. But when you calculate the average growth rate, it would be 8.2% year on year growth.
thanks sir. i m new to share market and zerodha is my first broker. your courses are the best and u reply promptly.thanks a lot.feel priviledged to b assosiated with zerodha
Its our pleasure to have you as a client Vinod! Please stay tuned for more content! Thanks.
Thanks for such a nice and lucid explanation 🙂 You never really explained what is meant by stock. Is it same as share?
Good question 🙂
Investopedia says – For example, “stock” is a general term used to describe the ownership certificates of any company, in general, and “shares” refers to a the ownership certificates of a particular company. So, if investors say they own stocks, they are generally referring to their overall ownership in one or more companies.
Dear Zerodha
Being a beginner I have a question regarding placing order.
if there are following offers are available company “x” at a point of time
500 Qty offer price-200
300 Qty offer price-205
500 Qty offer price-208
Can i place an order for 1000 shares of company “x” without specifying a price(let it be executed at available offer price)?
And would it be considered as a single order by broker(for brokerage charges)?
Yes you can place the order…its called the market order. Broker will consider this as 1 order.
Thank you Karthik for the reply.
this means this single order placed for market price for 1000 Qty, would be executed as a single order with three different prices
(500 Qty offer price-200,300 Qty offer price-205,200 Qty offer price-208), right?
Yes, thats how it would work.
Thank you Karthik. I am already in process of trading/demat accounts with zerodha.
Super! I’m certain you will have a good experience trading with Zerodha. Good luck.
This is very useful information in very clear language. My query is if I want to buy 200 shares at 100Rs each and in market 198 shares are available at Rs 100 price and only two shares are available at Rs 101 price, then what happens?
This depends on the kind of order you have placed, if its a market order then you will get 98 shares @ 100, 2 at 101. If its a limit order then you will only get 98@100, 2 will remain pending.
Dear Sir,could you kindly explain the 6 months answer for calculating CAGR
…i think ans is 37%..
Its 3550/3030-1 = 17.16% or 17.16%*2 = 34.32%
CAGR for 6 months is (3550/3030)^2 – 1 = 37%.
We cannot just multiply absolute return for 6 months with 2 to get CAGR.
CAGR should be used when you are measuring returns for over a year. For returns under a year, go ahead and use simple returns.
Hi,
I’m new into trading and in the process to open a trading account in Zerodha. Thanks for this wonderful introduction.
I have one doubt. Under “6.3 – What moves stock” You have shown a chart where the sellers are free to define the price at which they want to sell them. However, when we trade share, we can only see a fixed price of a particular share, based on which we need to buy and sell.
So, how does the price of a particular share gets changed ?
Well, its like this – consider TCS is trading at 2550…you as a seller of the stock want a slightly higher price, say 2560. You enter this price and wait for a buyer to buy at your price. Assume someone actually buys it from you at 2560…then the last traded price changes from 2550 to 2560.
Hi,
Doesn’t this kind of ability leads to manipulation? For example, I have 1000 stocks of value rs 100 which reduced to 99. I make my friend to buy 100 of it at rs 101. which makes the last trade amount to be 101. Wont this enable me to sell the remaining number of shares at higher price?
Yes, but the question is how will you do this? The orders are matched based on price and time priority.
Hi Karthik
What happens to the derivative segment when the stock is split or merged or any other kind of capital reconstruction?.
Say a company is trading at Rs 1000/-
I buy a call at strike price of 1000. Company announces stock split in 1:1, so new Market Value will be 500?
Will I be doomed for not keeping myself up to date with the internal reconstruction of the company?
Similarly What happens when you short and price goes up as a result of merging two shares?
No you will not be doomed 🙂
In fact the exchanges would send out a circular on how the FnO positions change post corporate events, check this for example – https://www.nseindia.com/content/circulars/FAOP33055.pdf
Thanks Karthik
I’ve recommended Varsity to all my friends who are interested.
Great work 🙂
Hi Karthik
Can you have a look at Crompton greave Chart and explain what happened on 14th and 15th March 2016? Did people lose all money or they were compensated in the form of share? How we as investors can anticipated such drastic 70% fall in a day?
I’m not tracking the stock, but I’m guessing this was due to some corporate action like split or bonus.
Thanks for spreading the word 🙂
What if I want to sell/buy shares of say A company and there is no buyer/seller ?
What will happen then?
Assuming that company A’s share are plummeting and i am making losses(as a person who wants to sell shares)
You can buy or sell only of there is a counterpary willing to take the opposite side. The ease at which you can buy or sell is called liquidity, if there is no liquidty then there is a chance of you getting stuck. Hence it is important to ensure that the stocks that you trade has sufficient liquidity.
Hi Karthik ,
Varsity is very resourceful and easy to understand in layman terms. My question is how the intermediate instructions like depositories, stock exchange gets profit, generate Money fir their operations and their services. Eg:: stock brokers will charge commission from traders having account . But we don’t pay anything to NSDL or CSDL , . Who runs stock exchange either govt and any other private people. I have read that BSE is private and BSE is govt owned. But SEBI is govt run public institution. Now where these BSE, BSE, SEBI, , depositories, earn money for their service.
Praveen – Depositories do charge a small fee when you debit shares from your DEMAT account. Check this – https://zerodha.com/charges
Stock exchanges are private bodies run under tight government (SEBI) regulations. In fact all financial intermediaries are run under tight government regulations.
I’d suggest you check the charge list to get a sense of who charges how much.
hi karthik – its really great in you to respond throughout the years for your posts. can you explain how to identify if a stock has sufficient liquidity or not with any indicators, or params.
Raj – one simple way to look for liquidity is to identify how tight the bid and ask prices are. The smaller the the bid-ask spread, the higher is the liquidity.
Consider a xyz company if I buy 51% share of the company then I can enter into a board of that xyz company another doubt also if I buy a share of ABC company and company has been taken by bank due to loan then what will happen to my share
Yes, with any large shareholding (need not be 51%) you can command a board seat.
In this case, you will still be a shareholder, but the majority ownership would have changed.
If I have some stock which is trading so high that no one wants to buy it, then what is the use of having such stock, because unless you sell it you are not going to get your investment back. Or, the company buys back their own stock from you?
Irrespective of the stock price, if the company is solid fundamentally, then there will be an active order book for it. Take MRF Ltd as an example. So always stick to fundamentally good stock, and the liquidity will follow through.
Hi Karthik,
As you have mentioned when NASSCOM announced the 15% drop in customer’s IT budget it is viable decision to sell. But who excatly will be the buyers in this case as everyone with Infosys shares will look to sell and the ones without the would like to refrain from buying any shares?
and one more thing, do these prices fluctuate only on the basis of assumptions, like, maybe the company is going to do well or maybe it’s going to worsen? does the actual financial scenario of the company play no role?
Yes, many factors contributes to the price fluctuation.
Different opinions is what makes a market. So at any given point there will be people with opposite views in the market.
Hi Karthik,
Amazing initiative and really informative tutorials.
I have one question regarding Intra-day trading. The capital gains made from Intra-Day would be taxable as per tax bracket or since these are equities it would be 15%?
Also can Loses from intra-day be used to offset Short term capital gains?
It will be considered as a business income. Please do check out this module on Taxation and markets – http://zerodha.com/varsity/module/markets-and-taxation/
Hi Karthik,
I need clarification on a hypothetical situation: Say I have 10 shares of xyz company which is currently trading at 100 Rs. Say I place a limit sell order for 2 shares with selling price as 110 Rs. And also place a limit purchase order for 2 shares at 110 Rs. Will the Last Trading Price jump to 110 Rs ?
No it wont. Following things you need to consider –
1) 10% jump may not be allowed by exchanges as there are circuit limits for non derivatives stocks
2) If the stock is liquid then there would be many more competitive bids and asks
3) Lastly, your order will be net off with each other 🙂
Thank you for the response. I think I should start trading to understand the game better. 🙂
You should. They say you cannot read a book and learn swimming completely 🙂
In the previous articles in one of the comments you said that the holding period should be a minimum of two days but in this article you say that the holding period could be even for 5 minutes…. So which is true…?? Could you explain??
It really depends on the context. If you tell me your intent, maybe I could help you better.
What if i want to sell a share of Infosys at 1350.5. But the buyers are willing to pay 1350 and 1351. No buyer at 1350.5. Will the trade execute?If so, How?
For a trade to occur, the price has to match between the buyer and the seller. So, in the example you’ve mentioned the trade would not occur.
As it is shown in example that :- selling price are 3002,3006,3011……..which are higher than buying prices.But how these selling prices evolve at a higher value than buying prices in Real Stock Market ?
How it raise from 3000 to 3002 ?
How it happens exactly ?
Can you elaborate please ?
As the expectation increases, the price of the stock increases. This is natural, as traders are willing to pay higher today, for much better price tomorrow.
If i purchase PC jewellers tomorrow, will i get bonus share on 6th July.
Yes, I believe the record date is 7th July.
Appreciate your effort Karthik and Varsity is very usefull and easy to understand.
My question:-
Apologies if my question is so silly but I am very new to stock market. Consider a xyz company, if i buy 1000 shares and then due to an emergency, i need to sell all those 1000 but i could not find any buyers, in that case, could i sell to the company where the share belongs. Is there any way for that?
No Ravi, you will have to sell the shares in the market. You will always find sellers and buyers for shares (especially if you are dealing with smaller companies). You may end up in situations where there are no buyers or sellers only if the company is really small and obscure. For top 500 companies, you will not find yourself in this situation.
Thanks Karthik,
Thanks Karthik, One final doubt, If the share is stuck in the obscure company, then when/how will be the shares be cashed back by the company. [Any examples, Just curious to know].
Appreciate your help.
Thanks
Ravi.
You will have to place your order a hope for a fill. This is the only way out.
hi karthik,
i checked in zerodha brokerage calculator by entering the values you have mentioned in scalper. It ended up showing me a net loss of
5500 thousand in intraday equity. Can you provide me with the solution of how this can be solved?
Thank you.
I’ve just assumed there are no applicable charges here, Nikhil 🙂
By the way, great observation!
Hi, karthik
Today i saw the market depth of bombay dyeing. I can’t able to find any offer price and offer quantity all are zero(0), but there is lot of bid price and bid quantity. How can i buy it. I have to bid more or something else through which, i could buy it. But it shows vol traded quantity which is more than 50000. What should i conclude from these, i couldn’t be able to buy this share.
Can you try refreshing your screen once?
Yep i refreshed in kite mobile application. But it shows offer quantity and price 00 in bse and nse both. I don’t know due to some misunderstanding or actually doesn’t have any offer price in top 5.
Suggest you give our support a call. Thanks.
I think it was in upper freeze at that time.
Ok.
Is it necessary for a publicly traded company to disclose salaries of employees? How would the investors know that the employees are getting paid more than they should be?
No, only the salaries of key management personnel.
Hi karthik Sir,
I have some doubts and questions
(1) I heard that Sebi is planning to extend trading time, on 11/sep sebi conduct meeting, may I know what was the outcome of that meeting (no business channel covered that news)
(2)Weekly contracts on nifty are going to be started, these contracts are future contracts or options like banknifty?
(3) I am big fan of Zerodha, I want to know what is stand of my broker on time extension, is zerodha in favour or not?
Thanks
Please do check this – https://tradingqna.com/t/extension-of-trading-hours/19532/27
Hi karthik sir!
I wanted to ask that what the day traders or scalp traders do when (suppose today) the shares go down?
For ex if the shares went to, let’s say, 2990.
Do they wait for the shares to go up or they take up the losses?
Direction does not matter, Arpit. Scalpers and day traders just want active movement in price.
What if in the example of TCS the investor does not get 10000 buyers when he sells to ger 1000 rupees profit?
Well, that would be a problem 🙂
It takes 2-3days to process a transaction i.e. to get the shares in our trading account or to receive the payment then how do intra day stock traders manage to buy and sell the stocks on the same day???
It takes T+2 days ….i.e trade + 2 days.
When you want to do intraday, you simply have to buy stock today and sell it the same day.
Hi Karthik,Your tutorials are really awesome, and i am developing a lot of interest in the stocks market.
I just have one query..
As you said, a positive news rises the stock’s price, because there are buyers who want to buy the stock at any cost, and thus the sellers take advantage of this, and set higher selling prices. -And thats how the stock price rises.
Now, if there is any negative news, buyers will buy the stocks, but.. sellers will try to sell the stock at the maximum possible price only! (why one will set the selling price @95 rupees when the current stock is running at 100?)
Hence, if the seller sets the price to be Rs100, he will meet a buyer, no doubt!
But, the stock price should go down because of the negative news, and the “less demand, more supply principle”.
I am not getting exactly how the price will go down.
P.S. : The table which explains the price rise is really helpful.
If you can, please explain the price drop with some similar table.
Thanks!
Like I said, when negative news hits the market, sellers really want to sell out, they do not really care about the current price since they fear that the price will drop further. Hence the perceive the current price as something worth selling at. This is how the price continues to drops.
but if seller will sell the stock someone will buy the share then how can we say that the price goes down ? if always someone is their to buy the share ,i’m really confused sir please help me out.
This depends on what price the seller is willing to sell. If he is desperate to sell at any price, then naturally the buyers would want to buy at lesser and lesser price, and therefore the price goes down.
Happy to note that, Kshitij.
In case of negative news, the sellers would want to get rid of the stock at the earliest. They would not want to hold onto for long, hence the price drops.
Hi, kudos to ur team..
I have a questions..I am beginner
1. How can I buy ipo in primary market? ( During this primary market the ipo index is not listed in nse BSE but how can I buy shares?
2. Consider this scenario if I sell 100 shares of Infosys at ₹360. to make gain I have to buy it below ₹360..so what is the time period to buy it.( Did I need to buy within a day or else wait for next day to come below ₹360)
I’m assuming you have an account with us.
1) Check the steps described here – https://tradingqna.com/t/how-to-buy-d-mart-ipo/10597
2) If you have sold this in the spot market, then you will have to buy it back the same day before 3:20 PM….and you will be profitable only if you buy it below 360. In futures, you can carry forward the position till expiry.
In the above example of scalping, the trader buys 10,000 shares of TCS at Rs 2212 and sells at Rs 2212.1. You said that he made a profit of Rs 1000 but the brokerage calculator shows the LOSS of rs 6340.
Agreed, that was a bad example. Please consider 2212 as buy and 2212.80 as sell 🙂
How many percent of share is required by a shareholder to appoint a board director
Ah, I’m really not sure about this. Maybe 1-2%?
Hi Karthik,
I’m writing this on 25/10/2017. Sorry to ask you a very stupid question. Today i saw most of the PSU banks have gained due to some government aid annoucement or for whatever reasons. Now my question is that the gains are as high as 20% ( sbin ) and in some cases it went to 30% ( PNB ). According to my knowledge if any stock gains/loss ( +/-) 10% then the trading for that particular stock is halted automatically for that particular day. So, how come these stocks gained 20%, 30%.
Also i was looking at sbin oct 300 ce and at one point of time it was as high as 20,000% ??? I mean is this really true ?? Is it really possible to make that much percentage in one particular day in options.
Many thanks in advance
Ron, stock circuits, in general, are there to prevent excessive moves in stocks so that investors are protected against such moves. However, market participants can protect themselves from such excessive moves by hedging themselves in F&O. Hence there are no circuit limits for F&O stocks and they can move to whatever extent. The stock which is not there in F&O has circuit limits.
And yes, 20K% is true, options can do this magic 🙂
Thank you so much karthik.
PS :- By the way i’m still waiting for the updates for kite. You said it will be out soon ( but no idea what is soon here ) hehehe
All I can say is, hopefully soon 🙂
1) What’s your opinion on penny stocks? Obviously, the pro here is that one buys these stocks cheap & even if there’s a slight increase in price, there can be good profit. Con would be the lack of liquidity I guess.
2) Post-market hours, sometimes there can be some news which dramatically affects the price of a particular stock. Suppose, the news is positive & the stock price will increase the next day. So, how does it work exactly? Do people place their bids & it gets accepted in the order which they have placed (first-cum-first-served)? If someone reads the news late & wants to place an overnight order, will his chances of getting the stock at a lower price be relatively less since he’s placing the order late?
Thanks!
1) The perception of cheap or expensive should not be a function of the stock price. It should stem from business valuations. For example, a stock could be trading at 2500/- but from a valuation perspective, it could be trading at 10x earnings, whereas its real worth could be 20x, this according to me a cheap. Regarding penny stocks, chasing them is like buying a lottery ticket and hoping it turns into a jackpot.
2) In the event of a positive news, the buyers would want to sell their shares at a higher price, and they know that the buyers would be willing to buy it at a higher price. This drives the prices higher at the opening. Likewise for sell orders. Please note, placing the order early does not really help, placing the order at the right price does.
Hats off to you. The explanation is really good however I have doubts.
1. Stock price shown is the last traded price . Am I right ?
2.Let us say the price for any stock is 100 and I place an order of 10 share , is it possible that my order may not get fullfilled? because 10 shares are not available at that price or my oder will be placed partially?
3.In the above scenario do I have the option to buy/sell in the trading terminal for lower/higher price than shown for a particular stock ?
1) Yes
2) If the stock is not liquid, then yes, there is a chance that it may not get filled
3) Yes, but remember, for the trade to go through there has to be a counterparty available.
“17.16% in 6 months which translates to 34.32% (17.16% * 2) for the year” – Here, compounding is not used when extending for the year. Shouldn’t it be [(1.1716)^2 – 1]*100 %. = 37.2%?
If its return for under a year, then compounding is not required.
Why? If it grows with 17.6% for six months, then assuming if same 17.6% growth happens for next six months, compunding should be used right?
Compounding as a concept works best when you intend to measure the year on year growth. If you are measuring returns within a year, then take absolute returns.
Hi Karthik,
Appreciate the initiative and the content of varsity.
1 issue which i have faced while analyzing Petronet LNG that is they had a stock split 2/1 on 03-Jul-2017, which is should be captured accurately in Kite also but it showing as sudden drop in share price.
As i am new in trading and learning from varsity and questionnaire, need you help on the same.
Ashutosh, I this is fixed. Chart looks good to me. Can you mail [email protected], with snapshots?
Day trader buys 100 shares at 2212 at 9:15 AM and sells it at 2220 at 3:20 PM and making a profit of “Rs 800” , How? (Sorry , new to this)
Becuase you make 8 bucks with 100 quantity.
ohh!
Alright, Thank you Karthik.
Can we say that total number of stocks in market available at a time is equal to summation of
1) No of stocks authorized by a company for sale.
2) No of stocks put by investors (like normal people, company e.t.c) for sale in the market how already have stocks of that company and now want to sell it.
Hope I made my question clear.
Yes, in other words, this is called the ‘Free Float of the Company’.
I have a question. What is the free float of a company? Is it the value of number of Shares which nobody owns? What should be any person’s expectations from intraday trading in terms of % return?
Free float is the total outstanding shares held by the public – or available in the stock market. Higher the free float, higher is the liquidity, hence easier to buy and sell shares for intraday.
Hi,
I have a doubt here after reading above article. Its written the price moves because of expectation of news and events and buyer buys the share at whatever price the seller wants in case of positive sentiment. Lets consider a positive scenario, A stock with price 100 is trading and then comes a good news for the company. The seller now wants to sell the share at 105 and buyer buys it for 105. Now seller has sold the share to buyer getting his principal amount and profit of 5 rupees. What did company got here?
The company owner may/must be having a large number of shares in his company so he would be benefited when he wanted to sell them.
Yes, check for the promoter holdings.
Hi,
A simple doubt. Price of a particular stock in NSE at time t say 500. Let’s assume after some time the price reaches to 550 due to aggresive buyers[buyers given market orders]. But even in BSE the price would move nearly 550. There is no way that equal proportions of buyers/sellers available in both NSE and BSE for each and every stock. But still the stocks in NSE and BSE moves proportionately. I am not able to get the logic of price action in BSE.
It is not about the number of buyers or sellers, it is more about the price they are willing to pay. Hence the price moves in tandem.
It is said the secrets of a public company should be revealed right. What exactly does that mean ?
Thank you.
No secrets as such 🙂
All activities of the company should be documented and furnished to the exchanges.
Can we control the markets for like a very short period using demand and supply theory?
for eg. if i want a share price to rise…..we can convince other traders to buy that share which would significantly raise its demand thus leading to increase in share price.
?
Technically yes, you are your associates can keep buying the share at every fall, this will support the price and the stock may go up. However, this is easy said than done as it would involve lots of money.
Hi Karthik,
Firstly I would like to appreciate your efforts to explain it in a simple manner.
1) My question is why are we calculating Returns, absolute and CAGR. What is its use?
2) What happens in a situation where we want to sell at the certain price and there no buyers? Will it get expired after some time?
Thanks in advance 🙂
1) To understand how well your investments are performing. For example, you bought a stock at 200, now its trading at 220, translating to a return of 20%, which is better than a fixed deposit. If you were not able to calculate the return, how else would you benchmark it to FD?
2) No, in this case, your order will not go through.
Thanks Karthik 🙂
The return would be 10% and not 20% as per the above example
That’s an arbitrary situation, Keshav.
Hi sir , the example mentioned of scalper ,as he buys and sells the trade within a minute but is it possible to do such kind of tarding in such less time ?
Yes, you certainly can.
Is day trading as a lone wolf a viable career? Or it should be done by people working at proprietary trading firms? Do ‘people’ day trade or is it the algorithms?
Depends on you actually. I used to day trade with a bunch of people, it used to be fun. I’ve day traded alone, and I remember enojying that phase as well 🙂
I have one doubt.
In your example, where I try to buy 200 shares of Infosys at 3030. So the algorithm tries to find sellers who are willing to sell at 3030. What if there are many sellers and each are trying to sell at different price. For e.g. one may think of selling at 3032 and one may try to sell at 3035. And how does the stock exchange software handle this situation?
Can you please explain.
Aravind, this is done by the order matching systems at the exchange. If you have expressed interest in buying a share at a certain price (via limit order), then you will get to buy it at the same price, the order will remain in the system till this match happens, and if the match does not happen within the day, the order will get cancelled out.
Hello sir i have a one query about margin/leverage provided on intraday equity by zerodha.
Why zerodha or any broker give margin to their customer?
If we have only 5000rs in account then why broker give up to 20× margin?
Any extra charge for margin facility?
How margin works on exchange?
No extra charges as such for providing margins. Margins are provided to ensure your maximize bet, assuming your point of view is right. But please do remember, in case the bet goes wrong, you can lose quite a bit with margins.
Dear Karthik sir
I want to know more about zerodha opentrade. 1) can I place the order as the star (which one I am following) placed for him? 2) How popular is the opentrade facility in zerodha clients? 3) can it be usefull to increase my profitabilty?
1) Yes you can
2) There are quite a few followers on it
3) This depends on the star you are following.
Sir which module should I refer to understand mutual funds?
We dont have a module on MF yet, but will try and build one sometime soon. Meanwhile, you could check out these videos – http://www.mutualfundssahihai.com/en/videos-more-about-mutual-funds
Hi,
can anyone clarify who exactly is rising the daily share value ? Is it Investors or Traders ?
Let us take a scenario below.
There is a positive news in the market for Infosys.
Currently it is getting traded at 3030.
There is one seller who wants to sell it at 3050.
There is one buyer who wants to buy it at 3050.
In this instance will the current share value(3030) get updated to 3050.
If yes why the buyer is giving a value of 3050 here instead of 3030 ??
This is a collective effort of all market participants.
Yes, in a sense what you have outlined is the way it works. So a trade will happen at 3050 and the share price will jump from 3030. Buyer is willing to pay 3050 because he fears no one will sell him at 3030 and he also expects the price to go much higher than 3050. This is bullish sentiment 🙂
Dear Karthik ,
I have one doubt. Iam very new to this platform and i want to do trading and efforts you guys are taking are wordless.
As per my understanding while trading one is earning money due to other’s greedy or fear, correct.
So what are the benefits company gives to the public for buying that company’s shares.
I never heard like people telling that they are getting profits from their company ( may be some companies are giving like dividends ).
So company just gives a play ground to play with peoples fear and greedy .
Please clarify , i think i may be wrong
Anis
Anish, here is the thing. The share are listed and you can buy them today with a hope that the company does great business and their profits increases over the years. If this happens then the share prices also increase and therefore your initial investment will be highly profitable and creates wealth for you. This is how long-term investment works.
Meanwhile, on a daily basis, the stock price fluctuates. This fluctuation gives certain trading opportunities and people end up trading the stock. So essentially you can either invest or trade or do both.
Thanks a lot for these beautifully written articles team. Based on my understanding only in primary market aka IPO , the company actually makes money. Once the stocks are listed, however high/low the prices climb/decent that institution does NOT gain/lose anything, it only effects the personal gains of shareholders. So for example Infosys stock prices just trade on the news about Infosys, but Infosys has absolutely nothing to gain from it except perhaps as a marketing number. So my question is isn’t stocks shallow, they are based out of nothing , I don’t understand why people buy or sell it, it’s just like any crypto currency or betting people take on cricket match or whatever. I don’t understand how the secondary market participants are helping the economy grow, it’s more like one gains the money the other looses by being on the unfortunate end of the bet. Let me know if my understanding is far from truth
What you’ve said is partially true. The company makes money at the time of going IPO by means of raising the funds. Once the shares are listed, there are shareholders of the company, literally millions of them. The share will perform well if the company performs well. If this happens, then the wealth is created for the shareholders, which is, in turn, beneficial for the economy in multiple ways.
Meanwhile, people also trade the stock to take advantage of multiple gyrations in the stock. This is perfectly legit. However, these short-term trading activities does not really help the company.
Thanks for the quick response. Yes I agree shareholders make money in stock market
But increase in stock prices won’t allow the companies to raise more capex, so company per se won’t make money but their share holders do. I feel regardless of short/long term trades or even investments won’t improve the prospects of the company isn’t it , only it’s shareholder’s wealth improves. I have this follow up questions
a) how can company raise more capex, after getting listed, if it does not have any reserves , only internal accurals and debt ?
Yes, changes in stock prices only impact the shareholder’s wealth and not really the daily needs of a company. Capex can be funded by listing, debt, or private financing.
Thank you for your patient replies 🙂
You are most welcome!
Hello sir ….Really frustrated with trading don’t no what to do .Here are my trading details
..On 29 th may everreday batteries reported a considerable loss in annual report so I decided to short it in next morning as soon as market open on 30 th may it open 6% gap down , i take short trade hear at price of 240 but it moves in up direction so I exit my position at price of 247 …
Couple days back ashok Leyland reported a good set of number so i am expected that stock will move upward so I decided to buy it in next morning as soon as market open but hear on next day it moves in downward direction again I am exit my position with loss …..So plz help me ….What is wrong with these trade …What i am missing here ….Or my thinking process is wrong ….
Pravin, remember this – anything that seems to be logical and straightforward is already factored in the market. What you know, everyone knows. So a counter reaction is quite expected. This will make sense to you as you spend more time, gaining more experience in the market.
Why is Swing Trader more open to Risk even though he/she can hold a trade for considerable amount of time.
The only difference between day trading and swing is that the overnight risk that swing trading carries.
Dear Sir,
E.g. Current XYZ company’s share price is 50/- and they announce to buy back at 200/- and I’ve 100 shares at 150/-.
How this works? How i can sell my 100 shares at 200/- , because current share price is 50/-?
or as company starts buying its share, slowly price increases to 200?
Sorry if my question looks stupid.
When a company announces a buyback, they will do so at a specific price. In this case, Rs.200/. If you intend to participate in the buyback, you will have to do so at the specified buyback price.
Disclaimer: This question might be irrelevant, but I have been thinking on this doubt from past few days. Lets say company ‘X’s current stock price is 60. Normally the trend as per history is between 50-65. The historical data shows that maximum price in last 10 years was 80. But on the other hand, company’s VP along with few other old employees working for more than 3-4 years says that the price might exceed 110, in coming 3-4 years.
So the question here is, in such cases shall one rely on the historical data or on the internal news?
Internal news 🙂
Thanks 🙂
Hey Karthik,
I had a fundamental question. How are the changes in stock prices quantified from the demand and supply observations? eg. in the infosys example, why 3016 and not 3015? Who decides these prices?
Tapan, the market decides this on a real-time basis 🙂
The prices are as quoted by the traders, they quote this based on what they this is a fair value for their transaction.
But during trading we don’t have the option to quote a price, so how is the amount decided?
You can quote price by placing limit orders. I’ve explained ‘limit order’ later in the chapter.
Thanks a lot!
Hi Karthik – I recently read articles that BSE is going to allow startups to raise funds and NSE has already allowed it some 2 years back, how is it possible when they are not listed nor they will be issuing an IPO like other companies..?
The platform allows you to list with lesser compliance requirements. The NSE platform is called ‘Emerge’, check this – https://www.nseindia.com/emerge/
Thanks Karthik.. If we as a person buy in those stocks will we become part of VC or PE or how will it be accounted for ? How do we identify and buy in those shares ? is the normal demat & trading account enough ?
I hope one of this might become future Infy or Page ind
Yes, normal DEMAT is good enough.
I hope that happens too 🙂
Are wrren buffets principles are applicable in indian stock market….can we get companies with lower values of P/E and P/BV in indian markets??
Yes, it certainly is. Check the details on the stock widget – https://zerodha.com/z-connect/tradezerodha/kite/kite-3-0-everything-just-got-better
Hi Karthik, The Bids and offer shown in kite are only of Zerodha’s User or they include other brokers offer bid also?
They are feeds from the exchange, common to all brokers.
Pls post your analysis and view on today’s HDFC AMC .
Also DO’S N DONTS as trader.
Will try and do that, Chanu. Thanks.
Sir are their any type of packages to start trading at zerodha? Or we can start with whatever amount we want and services?
You can start with any amount you wish.
I am not able to understand how the investments made before IPO by the investors and the investments made by people in stock market.
1.When the company gets profit, it’s generally shared to all share holders. So the profit is equally shared by the people who invested in secondary markets also?
2. What if a single person holds all of the stocks (for example) and wants to sell his share , should promoter buy it mandatorily?
3. How exactly the investors before IPO and people who invested in stock markets differ as investors
Could you please shed some light on this?
1) Not equally, but to the extent of the shareholding
2) No, he can offer it in the market
3) An investor is an investor, does not really matter at which point he gets in.
How to calculate CAGR for 14months or 19months or 29months?
CAGR = [Ending value/Begining value]^(Number of months/12)-1
Sir will the XIRR function of Microsoft Excell gives correct answer for CAGR?
No, both are different.
Sir,
Is there any direct function in excell to calculate CAGR?
I’m not sure about this.
A basic question, if I plan to hold a stock for a short period say less than a year for its price, what would be the tax implication
and Zerodha brokerage charges?
Short term capital gains is applicable which is 10%, the brokerage is 0.
Thanks for this article. your articles are so clear, simple and easy to understand.
Could you tell few successful indian stock traders names? I know you are one of them. Do you take any classes, i’m willing to join.
I’m not one of them, Robin 🙂
The successful names don’t really come out in the open.
Is there any Whatsapp group regarding stock market training of zerodha… Pls help karthik rangappa sir and all my frnds… Reply plzz… I’m a beginner.. And don’t know how to trade
I have two questions
1. Is it correct that the stock price seen is the value of the last trade occured?
2. You mentioned about buyers bidding for X amount, and sellers offering to sell for Y. Going through the comments, I see that I can offer/bid through the platform using limit orders. Are limit orders the only way to do this?
1) Yes, the price that you see today is the price at which the stock traded last
2) Yes, else your order would go as a market order and you would trade at the best possible rate available.
Hey Kartik. I have a doubt.
Say there is a good news regarding a company. Now the share price of that company will go up. I don’t understand that how do you fix the amount by which the share price will go up. Say it is trading at 120 before now after good news it is trading at 122, so how did it get decided that after a good news it will be traded at 122.
That really depends on the excitement level of the market 🙂
My passion to learn a bit more about market dynamics and its scientific facts came up with an interesting finding and thought I will jot it here for a general awareness.The underlying search was to find out whether the market motion is a diffusion process like particle motion or a demand and supply concept or a mean reversion based valuation process.In a nutshell, on a microscopic view, it is a diffusion process, on a normal view it is a demand and supply process and in a telescopic view it is a valuation process.The underlying motion is connected to the option motion based on the square root of time principle.The variables, underlying value, underlying price underlying log return, underlying volatility and option sensitivity are interconnected by motion principles based on square-root law and time lengths.
For eg if the underlying price is 100 and the daily underlying volatility is 2.506935 percent then ATM option price ought to be 1 on a daily time length provided the volatility is constant.The same option would be 2 on a 4-day time length, 4 on a 16-day time length and.5 on a quarter day time length and 4 divisor factor rule.Similarly, the underlying volatility is also based on this square root of principle rule which expresses in option volatility.It may seem Greek initially but in reality it is how market dynamics works.I have created a black box excel sheet spread for easy understanding and it will be very useful guide for those who trade options.This excel sheet will help you to buy options on leptokurtotic moves and sell options on mesokurtic and platy kurtotic moves.Markets are nothing but a mix of irrational randomness and rational calculus as the 3 nobel laurates for economics of 2013 said.
That’s quite intense, Najeeb 🙂
Good article
Can there be a situation where there is no buyer-seller match? For example, say someone wants to sell MRF shares ( LTP 63,899.90) but no one is willing to purchase at such a high price. What happens then? Will the trade be denied outright or will it remain pending?
Yes, quite possible. It will remain pending in the system till the end of the day or till you find a counterparty, whichever is earlier.
Suppose a company’s share price is 2000 at 10:00 am. After 2 hours the share price changes to 2020.
who will decide the share price in that short span of time?? Is it the company ??
That is an outcome of the trading activity, Yashwanth.
Excellent @varsity & Zerodha team.
If the LTP of x stock say around 10.00 am is 100 and there are very good news regarding the company, and if i have 1000 shares that i would like to sell on the same day before day trading closes, is there is any specific % that i need to quote the selling price, since we do not know at what price the stock maybe traded last, so if i believe that stock might close at 200 can i put in a sell trade at 11.00 am at price 200/- wherein the LTP is 100/- or i need to keep on checking the price in regular intervals.?
Darshan, you cannot place an order so far away from the trading price. You need to keep the circuit limits in mind – https://support.zerodha.com/category/trading-and-markets/trading-faqs/articles/what-does-circuit-limits-i-e-price-bands-mean
Hi,
Recently Bharti announced rights issue in the ratio of 19:67. I have only 60 shares as on record date. Will I be eligible for applying for rights issue?
I’m not sure about the rights ratio, but you should check the right issue ratio.
Hello sir, as you said, when I buy 100 stocks for 3000rs, the amount for that is debited from my account and credited to the person who sold this 100 stocks to me. Then how can a company rise funds from this as the main purpose of giving IPO is to rise some funds for the company. But here the money is circulating between the traders. How is this possible?
The fundraising happens at the time of the IPO. Once the IPO happens, there is no more fundraising for the company. However, with the increase in share price, the net worth of all the shareholders, including the promoters of the company increases.
Thank you for clarification sir😊
Good luck!
Hi Karthik I have a problem with kite,I am unable exit the empty positions.why it is so? Today I sold Dabur shares in intraday and bought them back again .after that I wanted to sell some more shares,so I did it from MarketWatch but as the positions are not exited price is averaged and I had a loss.
Madhukar, after buying back, did you ensure the position was completely squared off?
Yes , I squared it off . I had a loss because of confusion created by this averaging and the show of total P&L in kite mobile.when I want to remove position it is showing ” can’t exit empty position” .is it only for me ?or is it the disadvantage of kite mobile? or am I missing something?
There is no disadvantage as such, you will have to just figure how the system works 🙂
You need to keep an eye on the open quantity, Madhukar. As long as you have a non zero quantity, you have a position open and the P&L is applicable.
Yeah really I am not understanding how this kite mobile works (in showing positions). can anyone please explain this scenario ,suppose I bought 100 shares of a company at 50 rs ,now in positions it shows the company name ( and a figure + 100 above it) average price as 50 ,LTP and live p&L according to LTP .if you click on the scrip ,under symbol B “add” is written under symbol S “exit” is written .now to sell those shares you have to click on S symbol .after selling is over ,now in positions it shows the company name ,average price as 0 ( zero) ,LTP and P& L . This much I understood , there is no problem in it . But now if I want to remove that scrip , there is no option of removing that scrip from positions . May be there is no problem for other users with the scrip not removable but to me it is a big problem . Why? Because after some time if I buy that same 100 stocks again this time at 54 rs ,it will show the average price as 52 and it will show the total P& l of the previous and present trades . what can I do ? I have to adjust or is there any solution for it?
Madhukar,
The buy average price is averaged over the multiple times you buy/sell that instrument. This is the expected behavior as we are required to show the weighted average of the total trades taken for the day. The only alternate you is to track your most recent buy average from the orderbook.
sir
after the mkt is closed ,price shown in kite (nse) is differnet than nse website price and moneycontrol(nse)?
You must be checking the last traded price versus the close price, both are different. Check this – https://support.zerodha.com/category/trading-and-markets/trading-faqs/articles/ltp-doesnt-match-close
sir
most website shows stocks charts of 2000-2001 onwards ,
where we can find charts of 1990’s and 1980’s
thank you
I think chartink has the charts. Please do check.
sir , it shows from 2000’s not before .
Hmm, I think that much data is more than sufficient for any analysis that you are trying to do.
Hi, I have a quite a few queries on CAGR.
I wanted to know how the CAGR gains are reflected in our demat account. Is it calculated only after selling the shares ? Or is it calculated dynamically as time progresses as current value ?
For shares which are inherited/gifted, will CAGR be calculated from the original purchase date of the share or from the date of transfer of the shares ? What is the role of depository participants in CAGR calculation ? Is CAGR calculated by the company whose shares have been purchased ? After transferring the shares is the purchase date entered into the Zerodha critical in determining the CAGR calculation ?
Thanks for your help.
The one you see in your DEMAT is the absolute gains and not really CAGR. For now, you will have to calculate the CAGR on your own. It is quite straight forward, as explained in this chapter.
For inherited shares, it makes sense to calculate from the time you inherited. Depositary participants can do this math for you. Also, the purchase date is critical, without which the CAGR cannot be calculated.
Thanks for your reply. I came across an answer on taxation of inherited shares in economic times dated 3rd Jan 2018 (http://www.ecoti.in/ys366Z). It says to consider the past date and price. I suppose this is only considering the tax on the shares and not CAGR ? So while entering discrepancy in Zerodha what is recommended to put as purchase date and price ?
You can enter the original date of purchase and acquisition cost to the person from whom you inherited the shares. You can go through Sec 43C (2) of the IT Act which clarifies this.
Dear Karthik,
That cartoon at start made me chuckle. That is a great piece of humor. Thanks for this wonderful information you are sharing. Absolutely amazing!
Very few people notice that 🙂
Shouldn’t the Absolute Returns formula be ([Ending Period Value – Starting Period Value]/Starting Period Value) *100 rather than [Ending Period Value / Starting Period Value – 1]*100. The 17.6% return you calculated was using the first formula, but you have displayed the latter formula. In fact if one used the formula currently displayed, the return would be 117.2%.
Both are the same right?
Hi Karthik and Team Zerodha,
I have been part of the industry for over 10+ years now and haven’t come across as simple explanation to various concepts as simple as you have. Amazingly brilliant work!! This should be part of the investor education campaigns.
Additionally, the cartoon at the beginning makes you chuckle. Great humour and fun!
Thanks for the kind words, Ritesh 🙂
Hi,
The course material is really good and helpful.
I have a question regarding buying and selling. Suppose there is a situation maybe recession or anything like govt. act or regulation in the country. And all , if not many, want to sell their stocks. As per the material given above, stock market matches buyers and sellers. In this situation there are no buyers because of the situation, so can seller sell his/her shares? If so, how.
Thanks
Different opinions is what makes the market, Adithya. So at any given point, there will be people with opposing views. For example, when there is deep distress, some investors may find deep value and hence turn into buyers.
Hi Karthik,
Thank you very much for your free tutorials…I am new to the stock market and thus I wanted to ask a very foolish question and may be a bit negative as well…
I bought 20 share for Rs.1,000 and after 5 years I sold it for Rs.50 (Company performance went down for some unexpected reasons)…However year 1 there was (18%) growth…year 2 (19%) year 3 (-12%) year 4 14% year 5 – 15%….finally in the year 5 it went down to Rs. 50…Can you calculate my CAGR? (What will be the end result on the 20xRs.1,000 investment on the company)
Starting value = Rs.1000/-
Ending value =Rs.50
Holding period = 5 years
CAGR = (5/1000)^(1/5)-1
= – 45%
The negative sign indicates that your investment has de grown by 45%.
Hi Kartik Sir,
This question is a bit off-topic but I could not find any chapter related to niftybees, bankbees etc. (I am sorry if you already have a chapter related). What are these scripts? And how do we get maximum benefit from these scripts? I would be happy to get some insights🙏
These are ETFs. I plan to write about these in the personal finance module.
Thank you sir🙏
Welcome!
Is equity trading is a zero sum game then??
Under section 6.4, you said “I want to buy stocks of Infosys at 3030 rate and then the stock market will find someon who wants to sell Infosys shares at 3030”. My question is, if we can decide the rate of the share as to at what rate to buy or sell then why are there share prices being displayed.
Listed to reflect the current mood/sentiment of the stock, which gets manifested in the form of a fluctuating share price. Also, not all decide on the price (limit order), most of them are price takers (market orders).
Great lessons. Really appreciate your efforts. Thank you very much. I will get my nephews to read Rupee Tales. We were never taught about finance when we were kids.
Could you please tell me If you were to give some advice to a young and beginner investor like me what would that be?
The reason being I know rich people don’t make money because of their money but because of their mindset. I also know there is a lot of advice out there but still I want to know by asking.
I’m glad you liked the content here and I hope your nephews like RT as well 🙂
The only advice I’d like to give you is to start investing early in your life. The sooner the better. Someone of the best ways to generate wealth is actually the simplest ones such as a simple SIP in a mutual fund. Make indexing (low-cost index investment) as a part of your overall SIP strategy.
Great job here since 2015. You’re never tired answering queries. My respect!
My day does not end without this 🙂
Nice teaching of stock market
Happy reading, Kuldeep!
Why do we have to use CAGR instead of absolute returns if the holding period is more than 1 year
I would like to thnks zerodha brokerage for teaching like this with the powerful examples &
nice content, thank you so much☺️
Happy reading, Ashish 🙂
[…] 6. The Stock Markets […]
Hi Kartik,
Do we have people who are a mix of traders and investors ? In other words, are there people who act as investors (regarding a few of the stocks they hold) and then actively trade on the stock market (on a daily basis) with other stocks that they hold ?
Yes, of course. Btw, I do invest and occasionally trade when I see a good opportunity.
Thanks for clarifying !! Much appreciated Kartik !
Good luck!
Hello Sir,
Thanks for all your efforts to write content and replying to each and every comment. My question is:
Everyone is there in market to make money. Then why do people sell there stocks bearing losses?
The fear of unknown, what is the losses get deeper? With that thought people sell 🙂
Thanks for explaining this. Its superb. I have one question and need your thought.
Suppose I buy 100 share of ABC on 1st May at Rs 200 in CNC and sell those 100 shares of ABC at Rs 300 on 30th May at 10:AM. And on same day i.e. 30th May at around 12:00 noon I buy 100 shares of same ABC company at 250 in CNC.
1) So will this be considered as Intraday with profit of Rs 50. And my original shares which I buyed on 1st may for Rs 200 remains as it is?
2) Or will it be considered as fresh CNC buying of 100 shared with Rs 250?
If first point is correct then what will happen if I sell 100 shared and buy 200. Will for 100 it will be considered as Intraday and remaining 100 shares will be averaged with my initial buying of 1st May.
Awaiting your reply on this. Thanks You.
1) Yes
2) No, you sold and bought in CNC, so it will be considered intraday.
hi,
I am little confused investing in stock market so called Compounding benifits.
I listened to Many Online top Traders in India , they say there are two types of traders
one buy and sells within a year and other hold it as long run 10 to 20 years
They explained if I bought 1000 Rupees share and 15 % increment Then in next 20 years it would become 200,000 Due to Compounding interest.
1- I am confusing like how this works and how it will benifit such huge amount
and also
2- First in this post you mentioned we have to apply CAGR formula to calculate benifit is holding stocks for more then a year.
in your example it was 8.2% increment in 2 years
then in the next line you calculated on 6 months it was 17.16% and then you multiplied by 2 to calculate benifit for 1 year that was 34.32%
so with this If i again multiply by 2% we will get 68.64% profit
I hope you got my concern,doubt
Compound interest simply the return you get over on of the return you get, on a year on year basis. Think about your bank’s fixed deposit – assuming you get 10% FD return, then 1st year you get 10% on principle, 2nd year you get 10% on 10% + principal. So on and so forth. I have explained this in this chapter and here as well – https://zerodha.com/varsity/chapter/mindset-investor/
HI thanks for the reply, it was exremely helpful I have gone throught the attached link “mindset investor”
I have another doubt similar to prevous one,I am totally new so please forgive for my Noobe query
In the end whether its after 10 yeas or 20 years the profit will be based on the stock price at that time right!
If you see the stock on Deltacorp in Jan 2009 is was around INR 30 per stock after 10 years Jan 2019 is was INR 240
700% profit in 10 years
now lets suppose I have Invested INR 1500 in 2009 I got 50 stocks Right !
Now after Ten years When I want to sell all my stocks it would be sell on 50*240 =12000 Inr thats the total amount I will get accordinng to me.
please Correct my calculation
Yes, that is right. That’s how your P&L is calculated!
So it means I will be getting 12000 Inr after 10 Years !!!
how the compounding works here in the above case then
please explain if possible
Yes, please apply the CAGR formula and you’ll know at what rate your money has compounded.
Applying formla then its coming very low compounding profit {(12000/1500)^(1/10) } -1 =0.2311 only
That is 23% 🙂
Hi,
How do people calculate the Compounding benifit per year
Like for
eg: if i add 10,000INR to Bank as FD I can easily calculate the compouding benifit as Interest is common per year so with that information I know my 10,000 INR will be 10700INR if Interest is 7percent and similarly next year it will be 11449INR
But in stock market how can it be calculated , We dont know exactly how much it would be UP in one year and It may be down also in next year.
Note: I am talking in term of investor not as trader
Absolutely, so the concept of compounding works only at a conceptually level wrt to the stock market. It works perfectly well wrt Fixed Deposit.
thanks karthik, these BIg Big investor confused with there compund benifit calculations , you cleared it all thanks
Happy investing 🙂
It was written NASSCOM is a trade organization so what exactly is a trade organization, I tried searching it but couldn’t find relevant explanation!
It is an Industry body, check this – https://en.wikipedia.org/wiki/NASSCOM
i use kite zerodha
ये upper circuit वैल्यू कैसे चेंज हो जाती हैं intraday me
आज axis बैंक में हुई
पहले 375.40 दिखा रहा था
फिर 392 & 420
heavy loss due to this …
DATE 27 may -2020
Hello Karthik
Firstly a big thank-you to you and the team for designing and sharing this crisp and precise content. It has been fun learning with your content.
My Querrey is when I checked the lifetime charts of INFY BSE and JUBLFOOD BSE on Zerodha and on Google and MoneyControl, the charts show a big difference. For example
INFY (01/12/2014) traded at 4410 [As per charts available on Zerodha] whereas,
INFY (01/12/2014) traded at 514 [As per charts available on Google and Moneycontrol]
Why is this big difference in the levels on the same day on different platforms (in fact, INFY life high was around 805 in September 2019, as per google and MoneyControl)?
Am I missing a point here? or are the two charts different? And such variations are there in multiple stocks.
Also, INFY (01/12/2014) trading at 4410 dropped to 2104 the very next day (as per charts available on Zerodha). How is this possible given there are upper and lower circuits which govern such steep rise and fall on a single day of trading for any particular listed company?
Are you looking at this data on Pi by any chance? Because what we have on Kite is clean data.
I am unable to login to varsity on my web browser, using my Zerodha Kite account. Please help me with this too as I have to provide my name and email every time I want to comment something
You dont need to login for Varsity web, login is only required for the mobile app.
No Karthik, I am accessing this data through kite web portal via Google Chrome
Checking this.
Hye Karthik,
Did you find anything on my chart query (the difference in charts available on different platforms)?
Old data (beyond 2004), is not accurate Shubham.
The data I have referred to is from 2014 Karthik.
In no way I mean to say that Zerodha is providing false data and am also aware that Infosys has touched the 4000 mark in 2014, but the only question that comes is why other platforms like money control, google, etc. do not show the same pattern? Are the charts available with them optimized to actions like stock split or is the chart a totally different one?
INFY (01/12/2014) traded at 4410 [As per charts available on Zerodha] whereas,
INFY (01/12/2014) traded at 514 [As per charts available on Google and Moneycontrol]
This is what I was referring to
Yup, pre-2004 data is not adjusted on our platform, Shubham. Thats why the difference.
If I use the same formula which was used for six months for two years, the return comes to about 8.58% whereas with the CAGR formula, it differs. Which is the actual returns in that case?
While CAGR is a useful metric, it would be better to use XIRR to account for the irregular cash flows in a particular stock. Can you please point me to this feature if it is available?
If not, then would it be possible to include purchase/sale information for each stock in the exported excel file which captures the holdings. This information is available through ‘View Breakdown’ link in Console/Portfolio, but it is not being exported to excel file.
Agree. We have XIRR on Coin. Let me check on exported to excel file, Naresh. Thanks.
Sir,
It’s been two day that I opened my a/c in zerodha… through online ,But my sales manager is not at all responding…every day he will be engaged in other calls.
Will check this Rekha. Thanks.
Thanks Karthik for your good explanation.
As per article, there should always buyers and sellers at particular price of trading. However I want to know if quantity should also match?
For ex, I am willing to sell 200 shares of Infosys at price of 3500, however there is collective order from all buyers throughout the Market for only 100 shares of Infosys at the same price.
In this case, How the trade will execute?
Is it like 100 shares of Infosys at price 3500 will be deducted from my trading account and 100 shares still be there?
Or Exchange won’t execute this trade till buyers(collectively) for 200 shares at the same price place the order?
Thats right, 100 gets executed the rest stays pending till more quantities match the price.
Hello,
Few queries.
1. You mentioned Warren Buffet says he wants to keep his holding forever. I understand by that you mean to say long term investment but how does one gain if he/she just buys crores of shares and keep in their holdings? Even though dividends, splits etc. might happen it will be less compared to the investment made. Consider the case where a person invested in 2010 thinking to exit in 2020, with current situation he is in loss, so how exactly this forever holding concept work?
2. In comments, you mentioned stock price is decided by market demand which in turn is based on limit order. For suppose, if everyone trades via Market order then stock price shouldn’t change, right? Because as per my understanding, algorithm woks based on limit orders created by the traders.
1) This is a combination of both stock picking and the capital gains associated with it Shashank.
2) No the order types (limit, market etc) are all logistics, it has nothing to do with real demand and supply of the market
Regarding point 2, I tried to search in multiple articles as well. Question is simple, who decides the CMP which we see on NSE/BSE? Is it the traders (not like literally them but based on their willing price I mean) or any algorithm sets it as per demand/supply? I hope you got my question.
Shashank, is the market which sets the prices, which is a function of demand and supply. Think about a vegetable market – who sets the prices of onions and tomatoes? Its the demand and supply right? Likewise in the stock market.
“Demand supply mismatch also makes the stock prices move.”
I didn’t get this point, as if one trader is willing to buy and there is no one selling then his order will be canceled, right? How the stock price will move?
It is not one one one, in reality, there will always be a skew i.e. either the number of buyers exceed sellers or vice versa. Think about it, in the absence of this skew, the markets won’t even move right?
Hello Karthik
It was explaned that “Stock has hit the circuit” means that “the stock hits either the maximum or minimum price threshold for the day.”
What does it mean as every stock hit some low or high in a day. I req if you can explain it with an example.
Thank You
For example, a stock can have a 5% of 10% threshold, if it hits that threshold, then it means that the stock has hit the circuit. For example, a 10% upper circuit means that a stock trading at 100 cannot trade higher than 110.
Hello Karthik,
I am sorry I am not able to reply under your reply that is why posting it seperately, some issue with my browser.
Anyways, How we come to know about that threshold of any particular stocks that whether it is 5% or 10% or some other value? Is it defined somewhere or we have to calculate it?
Why it is not there for F&Os ?
The market watch window in Kite gives you this information, Vishal.
Hi Karthik,
Could you please remove this left side box or please make it an option where if we want we can minimize it on left side (like left side menu kind off). The reason is i have 13 inch laptop and now it became small. The full page option was more convenient. Either you keep both option and give customer choice or previous one was better(if you want you can move old chapter box to starting of page in center.
Thanks
Thanks Rahul, will share the feedback.
HI karthik nice articles..Thanks
But a general & basic doubt..Here in the example infosys 3550- 3030 = 520 17.16171617 here 17% is arrived by dividing 520/3030
on the other hand 520/3550 = 14%..usually this is considered as profit margin in general..profit/selling price..not profit/buying cost price..
Guess even simple interest goes that way..here why the buying cost is considered for rate of returns not selling price….never mind..its just me & maths are India & pakistan ..could you please clarify ..thanks..
Kumar, rate of return is always profit measured against the buying price. So consider just the buying price to measure your P&L.
Thanks for answering earlier query karthik..Its just your articles are nice,even total novice or less talented can also pickup something about the topic..Thats why asked the doubt that has been bugging me longtime…
thought someone like you can clear it…read in some other articles..
for a company if it takes 1000 as cost price to produce & they sell it for 3000 rs..they make profit margin between the profit/selling price…whereas between profit/cost price they call it as MARKUP..also in sales i have seen the profit margin usually calculated b/w profit/selling price in companies ….am referring sales in products/services manufacturing sector….
dont know, is this relevant to rate of returns of trading? am i missing something or comparing apples & oranges..
am not a finance guy..just wants to learn..pls refer this link..
https://www.investopedia.com/ask/answers/102714/whats-difference-between-profit-margin-and-markup.asp..
this is what i referred in previous comment rate of returns as markup .. whether markup or margin which is best?
what is universal?
cost = 1000; revenue/sale price=3000 profit=2000 margin=66.66% Markup = 200%..
cost = 3030; revenue/sale price=3550 profit=520 margin=14.64% Markup = 17.16% (the rate of return for infy in example)
requesting logical conclusion.again sorry for bugging you…thanks in advance.
Sorry Kumar, I’m not sure about the markup bit. But here is an example –
You buy stock of Infy at 800 today and sell it 880 after 10 days. Here –
Buy price = 800
Sell price = 880
Profit = 80
Profit % = 80/800 = 10%.
What if buyers intended price doens’t match with any of the sellers. In that case does market gives feedback or it simply rejects the order?
Sir, your explanation for the concepts is absolutely brilliant.
Happy reading, Venkat!
Hey Karthik,
Just a speculative question. What if there are no stocks available to buy of a certain company. A completely hypothetically scenario: “Let’s all of Stocks of Infosys are bought and no one is willing to sell”. Can a situation like this arise in the actual market, and if it does what happens to the market?
Cheers 🙂
Yes, possible. Happens on a daily basis when stock hit higher or lower circuits.
Hi Karthik,
In one your example you said that “Now the seller could be 1 person willing to sell the entire 200 shares at 3030”, How can a seller decide what price he wants to sell his shares at?
Because lets say the current market price of Infosys is current at 3030, the the seller has to sell his shares at 3030 right?
He can’t sell the share as per his choice at 3040 just because he wants to sell it at a higher rate right? Because the price of the stock is at 3030 at the current moment.
So this makes it a bit confusing at how the price is actually fixed for share. Can you please help me understand it better?
Cheers
Amith 🙂
He can place an order to sell at 3040, this is called the limit order, Amit. Each person has a different expectation of prices, they place their buy and sell orders in the system. When a buyer’s and seller’s expectation meet, a trade occurs and the price of the stock moves.
Hi sir,
I am really thankful for the abundance course on stock market.
1)As a beginner, Is it advisable to read modules in particular order or can i read random module.
I mean which module is dependent on which module. If i directly read commodity module without completing before modules, will i be able to understand.(I am a beginner)
2)Can i start trading with capital(5-10k), and with that amount in which market i can start (equity or options or commodity or any other).
1) Each module is designed as an independent module, you can pick and choose a topic of your choice and start reading. But few are connected, for example, commodities is dependent on Futures, so you need to know futures trading
2) YOu can, that is good enough to get you started and test waters.
Sir,
1. Does the knowledge of stock market help in playing Options?
2. Are they connected anyhow?
Yes for both.
So before IPO (i.e. before allowing the general public to buy shares), the share price will be decided on the basis of the company’s valuation. If the company has earned profits of Rs X and there are total Y shares of the company, then the price of each share will be X/Y. Right?
And after the IPO, the share price will not be directly connected to the company’s valuation, it will have an effect of demand and supply.
Is this correct?
X/Y would be profit per share. Yes, once listed this will be at the discretion of the market’s demand and supply.
Not related but I don’t understand the concept of penny stocks. Like why does SEBI allows penny stocks to be listed in the market? I heard that penny stocks are of companies which have almost no value. And why will a company go for an IPO with a share price worth pennies, what will they get?
A stock is not listed as a penny stock, it becomes penny stock over time. Like Kingfisher airlines for example.
Thanks
How do we calculate CAGR in case of SIPs?
You need to calculate XIRR for SIPs, check this – https://zerodha.com/varsity/chapter/measuring-mutual-fund-returns/
what is Intrinsic Value of a Stock?
How it is Calculated?
What are Different Models to Calculate Intrinsic Value of Stock?
Do check this module – https://zerodha.com/varsity/module/fundamental-analysis/
Hi Karthik,
I have been an ardent follower of your teaching methods and still continue to learn everytime something new all thanks to you.
I have a very basic question that might seem idiotic but I’m sure every market participant should at least know this.
How exactly does it matter to a company on what its stock price is currently? I mean say a company issues IPO and one share is issued at Rs. 200, then if a few years down the lane, in case the stock is trading at 400, the company doesn’t actually make any new profit.
The investor is just a part owner in the company and falling or rising stock prices don’t really have any effect in company’s business so isn’t the stock price just a mere speculation here?
Ajay, the stock price is a reflection of two things – current state of affairs plus futures prospects. Think about what happened to Yes Bank, DHLF, Lakshmi Vilas bank etc…if the stock price was mere speculation, then they should still be trading at crazy valuations right?
Hi @Karthik Rangappa. In the module on Financial Intermediaries, you said we can only sell a stock two days after it was bought. then how can someone sell a stock 5 mins after buying it, as you have said buying at 3000 and selling at 3020
There are two things, intraday trade wherein you buy and sell within the day. The 2nd thing is that you buy shares and hold in your DEMAT, which if you do, then you can sell only after 2 days.
Dear Karthik, when the Varsity was updated last?
This is work in progress. What exactly are you looking for?
Hi,
Why don’t you guys introduce CAGR column in portfolio tab of Kite app?
It will help us to understand our portfolio performance for time frame of more than a year.
There are too many edge cases to cover if we were to do this, Owais.
Sir I found physical share certificate of co operative society which is in Bangalore
My father has bought in 2005 someone has told him to buy
Share value is 100 mentioned in share certificate how can I convert it to demat form and what might be the value
Of share now
I think he bought that while incorporation of company only
Is the company listed? Please do reach out to the support team for this.
No sir,it’s Small credit co operative societys share certificate
That too I think it’s private
Then this will be tough. Do talk to the team once.
At what stage are these “shareholder privileges” discussed in varsity?
We have not explicitly discussed this anywhere in Varsity.
Hi Karthik,
Thank you for putting things so simply, which makes them very easy to understand. Please share your views on Jet airways, whether it will bounce back or it is one of those stocks now which we should avoid. TIA
Regards
Abhijeet
No idea about Jet, but it is unlikely, their debt is far too much.
Is annual intrest rate, mentioned in some of MF platforms, is CAGR or both are different?
I’d guess its CAGR.
Good article. Thank you Zerodha team. but seems You have give wrong Infosys share prices. Infosys share prices on 27/4/2021 trading on Rs. 1355/ Share and you have mentioned it was trading on rs 3500/ share in 2013?
Please clarify this.
Thanks in Advance
This was written long back 🙂
Hello Karthik
When i come to know about stock market around 1 years ago since then i am trying to know how the enire function of stock market works but didnt find any stuff that satisfy me recenelty one of my friend recommended me about your writting on stcok market and I’m about to finish introduction to stock market and what i found here in a very simple way cant explain in words .
lots of thanks to you
Happy to note that, Husain. Happy reading.
What happens when you sell and no one buy ?
The trade will stay open till it gets filled.
Hey,
Will u help me out how can I learn value investing thoroughly.
Please do check the module on Fundamental Analysis – https://zerodha.com/varsity/module/fundamental-analysis/
How the price of a stock goes up? Pls explain in the following example. Price of Infosys is 3016 at 10:05 hrs. Now if I want to buy at that time I will have to pay the last traded price, i.e. 3016. Next moment someone wants to buy so he will again pay 3016 (the last traded price) and the next buyer also will buy at 3016 and so on. My question is that if everyone has to pay the last traded price, how does the price actually go up or down?
Or in other words, what happens between the two transactions that causes the price of a stock to move up or down?
In this example – at 10:05 the price of Infosys is 3016 and I transact (buy) at that price. How will the next trading in Infosys stock which takes place at 10:06 the price becomes different and does not remain 3016?
You need not buy at the last traded price, you can place a buy order for a price lesser than the last traded price and the seller can place a trade to sell for a price higher than LTP. Once buyers and sellers agree to a price, then a new LTP is formed and the price moves.
Hello,
I noticed, comments are not listed in a chronological manner. This is a good information for beginners. And users comments help us to understand real life problems they face. Do update articles also as per the latest information or changes in the content.
Thanks.
Preeti
Yup, this is something we intend to work on. Hopefully soon.
Sir , i wish to understand..
Lets say i put purchase order at market price (351) and the xyz seller has to sell at limit price of 350 , so do the order tak3 place
Yes, it will since yours is a market buy an someone is willing to sell at lower price. Order will go at 351.
Sir , I am still confused..
I have placed a market order and market is at 351
Someone is selling but his sell price is 350 (he has limited it)
Then how come purchase be at 351 , it should at 350 only since he is selling at 350 (how come he get 1 ₹ higher) as in earlier comments you mentioned that only exact match transaction takes place.
Please clarify
When you specify a price, it’s not a market order. SO when you place a buy at the market, the seller at 351 will get priority.
Thank you for the quick response kartik , really helpful.
Just a small question what if there are no sellers at 351 , then will the 350 seller transaction takes place or not because the buy order is market but sell is at specific price
If there are 0 sellers, then the trade won’t go through.
Thank you for answering all my queries kartik, just a small part sellers are there at 350 , still there won’t be no trade as sellers are notnpresent at 351
Thats right.
Hi Karthik,
As you mentioned 3 different types of traders , day and scalper trader trade on a single day whereas swing trader keeps upto weeks, i want to know what is the maximum no of days a trader can hold stock, if trader holding stock has no time limit then what is the difference between trader and investor, is it only short and long term time holding difference?
There is no upper limit to this, Rajat. You can choose to hold the stock for however long you’d want.
Ok got it, Thanks
I’m able to get good experience and knowledge from this chapter – 6 and also valuable commends of Meny friends.
Happy learning, Karan. Hope you continue to enjoy learning from Varsity.
Hello!
Appreciation Comment!!
Though i am from Finance Background, I was never into that deep in stock market,
was Reluctant that the concept Might be complicated to understand!
But thanks to Zerodha, Which made it really easy for me to get my hands on stock market and many other Important things.
As My interest for gaining more knowledgeable Content regarding Stock market Has been increased.
Thanks for the kind words, Jyothi and I’m glad you liked the content 🙂
Hi Karthik,
The modules are in the Varsity website is having more explanation than the mobile app. Please suggest to me which one I should go for learning. Thanks for this great learning space 🙂
Both are the same, Vignesh 🙂
Namaste Sir,
I have made a profit on an Option trade of Rs. 4000 over a period of 7 days with a margin of Rs. 50000.
How do I calculate the CAGR of this?
You can calculate simple absolute returns for this, not CAGR.
4000/50000
= 0.08
= 8%
Very nice.sugesion.pl.give me tips for trading platform.expale kup Chan.
Thank you Karthik for the wonderful Information inventory. Really impressed with the way you answered every single questions from quite long time and carrying still.
I’m happy you liked the content, Swetha. Happy reading 🙂
Sir thank you
I am in learning phase.thanks alot
Happy learning, Raj!
Love and respect for zerodha..
1. Why suddenly market moves from a zone to up or down with high volume spike. But cant sustain that move and comes to previous zone.
2. Why some times a very high volume candle forms, but proportionately very small change in price.
What we understand from this both and what is the sentiments behind that.
1) That’s because at any given point there are many buyers and sellers, driving the changes in the market
2) High volumes need not translate to higher prices. Imagine this as a transaction that occurs at a flat rate.
Thanks for your reply
2. But how so much of quantity is been transacted at this flat rate. Can you pls check this as an example; Dmart 15 sep 2021, 11:49. 127.329k volume. How so much of volume got matched between bid ask spread.
I am not able to understand this transaction.
That data, at the bid ask level is not available, Karan. You will only get an EOD data.
Well explained Ashutosh.
do company gets any benefits when stockprice raises after ipo on secondary market? Or only he traders gets benefits of it ?
The net worth of the shareholders increases with the increase in share price.
Curious to know which is the latest/updated resource of Zerodha Varsity – Web version or Mobile application?
Its the same content, Bala.
Adding extra brackets in the formulas mentioned in point 6.7 will be much helpful to understand.
As in while calculating,
Absolute return = [(Ending period value/Starting period value)-1]*100
and
CAGR = {[(Ending value/Beginning value) raised to power (1/# years)] – 1} * 100
Noted. Thanks for pointing.
Gud explanation
How does the investor makes the profit?
By buying low and selling high.
Blessed to found this
Happy learning 🙂
Which calculator or application use to calculate the CAGR ?
You can calculate this on excel, Mayur. Simple formula application. Have explained in the chapter itself.
Response to Mayur Mali – CAGR is a straightforward formula, it can be done on a spreadsheet. (Final Value/Initial Value)^1/no of years – 1
Ah, I just saw your response Pradeep 🙂
CAGR formula otherwise is just a name given to the Rate of Interest in compound interest equation.
The final number 0.082 should be multiplied by 100, since the CI formla has r/100 in it.
Yeah, its the growth rate actually.
Sir, after reading this chapter, I have a doubt.
I have recently read in newspaper that Mukesh Ambani bought 100% share of a particular company, making that company entirely his own.
Then what is the benefit for him in doing this?
Since he owns whole shares, then how the stock price moves?
Please reply
Rakesh
He would have done that for other reasons, maybe it is a strategic investment.
Could you please elaborate?
Elaborate on?
Strategic investment.
hey but if i have infosys shares and if positive news come why oud demand more instead i will sell and earn profits then y selling pressure is there and if share price go down due to negative news that is temporary i will want to buy at lower price nd later on as demand increases i will sell…do u think i am right with this perspective?
Yes, you can always hold the trade and wait for it to recover your losses.
2 bits from me
1. please shift this comment box on top of the comments. getting to the bottom of more than 250 comments is cumbersome.
2. Wanted to know under what circumstances would traders find their transactions profitable as the profits would attract STCG. And that I think is a straight 30%. So technically I would have to minus 30% of all my earnings. How does one build that into calculations?
1) Taking this as a feedback
2) STGC is 15%, not 30% (unless you actively trade, treat profits from trading as income and you fall under 30% tax rate). But anyway, you’ll trade only if you find opportunities that are better after considering all expenses.
i have a small doubt, i would like to know the status of the stocks that are traded in the stock market, like is it fully paid, partially paid, and if its fully paid then are partially paid stocks not traded?
thank you for providing free financial knowledge.
They are all fully paid stocks in the market, Samaran.
how much money can a retail investor, invest in secondary market in total and in a particular share ?
how to calculate what percentage of shares held by an investor in a particular share?
You can invest to whatever extent you have. But if you end up owing a percentage of the company like, 1% and above, your name will show up in shareholders list.
Very glad to read the articles on stock market and the comments especially on how a person perceives the events,rumers, sentiments which affects prices etc. Thanks.
Happy learning, hope you continue to like reading the content here 🙂
Thanks for providing such a wonderful information also check Happy birthday wishes
Say comapny XYZ is listed at 100Rs.
1 person is ready to sell at 100.
1 person is ready to sell at 101.
I want to buy 2 share.
Will I have to pay 100 + 101 = 201 or (max value times * 2)= 202 to buy this shares at once? IF there are no other sellers at 100Rs.
Thank you
Person wanting to sell will want a higher price, so 101 is seller in your example. The buyer wants to buy at a lesser price, so 100 is the buyer’s price. If you have to buy, you will have to pay what the seller expects i.e. 101.
In the section 3.7, for calculating Absolute return;
” What if you have bought Infosys at 3030 and sold it at 3550 within 6 months? In that case you have generated 17.16% in 6 months which translates to 34.32% (17.16% * 2) for the year.”
how and why the return(17.16%) is multiplied by 2?
and if the stock sold within 5 months, what will the return multiplied with?
So if its 17.16% for 6 months, it is doubles for 12 months. You have to do similar math for 5 months or any other time period.
In the section 6.7, for calculating Absolute return;
” What if you have bought Infosys at 3030 and sold it at 3550 within 6 months? In that case you have generated 17.16% in 6 months which translates to 34.32% (17.16% * 2) for the year.”
how and why the return(17.16%) is multiplied by 2?
and if the stock sold within 5 months, what will the return multiplied with?
sir for LTP to be declared as such,how many traders have to trade at that price. for example if the LTP is traded by only by 10 people and the second greatest price is traded by 25 people then which of the two prices are to be LTP
It is always the last traded price, number of traders does not matter.
Sir Could you explain what is gray market in detail.
Its like a black market of sorts where stocks (mainly IPO) is traded.
Hello Sir, What is the use of XIRR and how to calculate it? How it is different from absolute return and CAGR? Thanks
Sunil, I’ve explained that here – https://zerodha.com/varsity/chapter/measuring-mutual-fund-returns/
Sir, Can you give me an idea of your net worth?
Good enough to support my family, Rohit.
“What price the seller wants” – How do these numbers get decided?
That’s market-driven, right? Kindly check the explanation 🙂
Hi Karthik, for return formula for 1 year in your example of the INFY return in 6 months, you have simply multiplied the return by 2 to get annualized return. But would it not be (3550/3030)^2 instead of simply multiplying by 2? Would appreciate your response.
Thats the CAGR formula used to calculate returns for over 1 year.
to compare two investment which has different absolute return and holding period, why can’t we use annual absolute return(absolute return/ holding period) to compare two investment rather than CAGR?
CAGR helps in normalizing the returns if the investments are across multiple years. Do check this – https://zerodha.com/varsity/chapter/measuring-mutual-fund-returns/
typo here should have been, summary last point “10. Traders and investors differ on risk-taking ability and the holding period.”
Checking this, Rohan.
I am 18 learning each chapter a day. Can stock trading be a good option to pursue full time or regular source of income , after learning .
I’m glad you are learning these concepts early, Chetan. But trading can’t become your full-time career option. You are better off pursuing a career option where you will grow your skills professionally and benefit from the steady cash flow. Steady cash flow is essential for long-term wealth creation. Unfortunately, trading does not offer this to you.
What if you bought Infosys at 3030 and sold it at 3550 within six months? In that case, you have generated 17.16% in 6 months, which translates to 34.32% (17.16% * 2) for the year.
This is incorrect.
(1.1716)^2-1 would be roughly 37%
The idea is to find the estimated absolute return as the period under consideration is under a year.
Hi Kartik Sir,
I had a doubt?
How a company can be listed in more than one stock exchange
Is the company divides its outstanding shares to issue some shares in nse and some shares in bse.
Thank you
Its a market place, Shaik. But this is a good question, we will put up a post on this 🙂
my understanding on value investor- an investor who waits for a short term fall and buys a stock at discounted price is this correct please correct if wrong, i didnt get this part correctly
They wait for prices to correct and value to emerge, that’s when they buy and wait till the value plays out.
Hello
I always wanted to be an intra day trader but intra day trading requires a constant watch on the market conditions so is it even possible to do while working in a 9-5 job ? If yes then please let me know i am just a beginner
I’d suggest you dont get into intrday trading as it requires constant monitoring and efforts. Stick to swing trades.
Sir,as the scenario you have taken in assumption(in your case Reliance),why should the Infosys share be affected when Infosys is the progenitor of IT i dustry in India?
Overall market sentiment changes, Prsenjit and, therefore all stocks also get impacted.
Hi,
When there is positive news on Infosys we expect to see mostly buyers, in this case, can u plz give an example of why sellers will be there in a positive situation?
Becuase they get to sell at higher prices 🙂
Sir does the stock prices go up when lot of people are bidding for that stock at a higher price or is there some other mechanism to decide whether the prices will go up or down
Yes, when more people want to buy, then the stock prices tend to go up. But generally speaking, no mechanisim to figure if the stock prices moves up or down. The market moves based on opinions and people actions 🙂
the appointment of Narendra Modi as the Indian Prime Minister was perceived as positive news, and therefore the whole stock market moved. How this happens ?
Becuase the majority was given to a single party, so that is perceived as a positive news. Which party does not really matter, market wants majority.
yesterday i sell 1qty Astral pipe from my holding for the purpose of chagres
i sell in 34 Rs. profit but when i generate p/l i chrges deducted 4rs. and other credit and debit also deducted ?
sir can you please explin what is other credit and debit ? why?
I’d suggest you speak to customer support desk for this, Rajeev. They can explain this better over phone.
I received an email and SMS today from NSE KRA to update KYC through a link. Being a client of Zerodha, please clarify me is it an authentic link
I’d suggest you speak to the support desk for this query, they will help you with this.
Presently Ex-date and Record date of any corporate action are made same . Why does such change is made?
Hmm, are you sure about this?
Hi Karthik,
With so many buy/sell happening for a stock like say infosys , at what point money or fund goes to the company. A stock is issued by company to raise fund but how does these fund go to company accounts? Is there some daily reconciliation which happens?
Regards
Amarendra
That happens only at the time of IPO, not after that 🙂
Does XIRR take into account dividends buyback splits etc
XIRR considers investment values and not stock price, so yes, it would.
I have heard abt Algo trading, One question hits my mind is why people are more involved personally into trading. I think machine can analyse the trends based on past data more accurate than a human, so is there any sense of competing with machine as a human.
Humans have emotions, while machines don’t, and thats exactly what these algos try to acheive – to view markets objectively without any undelrying emotion.
I am very much obliged to you [the article writer] and Zerodha for such an initiative.
Happy learning, Govind. I’m glad you liked the content on Varsity!
hi,
The formula to calculate is – [Ending Period Value / Starting Period Value – 1]*100
i.e. [3550/3030 -1] *100
= 0.1716 * 100
= 17.16%
A 17.6% is not a bad return at all!
in the above example, if you consider a time frame of 2 years, you can simply consider the average yearly return as
17.6/2 = 8.8%, right? why should we use CAGR?
and where are we compounding the investment? it’s the same initial amount we have invested in market. could you clarify?
What we are trying to figure is the rate at which money grows year on year.
The math is wrong while calculating CAGR for 6 months.
6 months, you only need to consider the absolute return.
” For example – a scalper buys 10,000 shares of TCS as 2212 at 9:15 and sells it 2212.1 at 9.16, ending up making 1000/- profit in this trade.”
How can you say the scalper will make 1000/- profit. After paying all brokerage charges we will be in loss of -7026.59 Rs
I was just trying to give a super simple example, but you are right, maybe I should use a better one.
Yes sir, give us the % number that one should have atleast made profit to cover his/her brokerage charges
If you are scalping, anything higher than 0.20% post charges should be your profit per trade.
Sir can you explain in little detail
Sure, but what is your query?
Just one question – What is the point of having 2 stock exchanges? (BSE and NSE). Also, is there any particular reason that more companies are listed on the BSE as compared to the NSE?
Just to ensure no one exchange has a monopoly 🙂
I want to sell 200 share at x price but only 150 ppl are there who will buy the share at X price..Will the trade be executed?
Yes, if the price match happens, then whatever is the quantity available will get matched and the trade will get executed.
Why can’t we use absolute returns to compare 2 mutual funds for the same period? If over the same period, they have given absolute returns of 20% and 30%, then I can tell which one is better. What is the point of using CAGR to compare two investment options ?
Yes, you can do that but absolute return will not help you understand the the year on year growth rate, which is important while making an investment decision or analyzing a fund.
Your lessons have been invaluable, offering insights that I carry with me every day.
Thanks for letting me know, Ganesh. Happy learning 🙂
Hi Karthik Sir
I have a question here,
Suppose the LTP for Infosys at 10am is INR 3030.
And there is an only seller in the market right now, the seller want to sell it at 3028 but the buyer want it at 3030, Will the stock market consider this trade and facilitate the transaction ?
2nd question
What if the seller want to sell it at 3030 and buyer want to buy it at 3028 ?
Thanks
If there is only one seller and one buyer, then one of them have to agree on price, only then the transaction will go through. The Last traded price is basically the price the previous set of buyers and sellers agreed upon.
thanks
Hi,karthik Rangappa sir.
I had one question for which I didn’t
get answer any shere.
how can a company stock can be listed in more than one stock exchange ?
Is this scenario is correct.
For example company xyz comes for ipo
For first time. For issue of 10% stake to public
And wanted to list it’s shares on both stock exchang.
Are they issue as given below
Nse – ( 5% stake will be issued )
Bse – ( 5% stake will be issued )
Is this correct ?
And finally
“Thank you for your relentless efforts in advocating for free stock market education for everyone.”
When a company lists its shares on more than one stock exchange, it does not issue separate stakes for each exchange. Instead, the company issues a single set of shares, which can be traded on any of the exchanges where it is listed.
For example, if a company XYZ issues 10% of its stake to the public, all of those shares can be traded on both the NSE and the BSE if the company is listed on both exchanges.
Listing on multiple exchanges simply allows the shares to be traded on those exchanges, providing more options for investors. There is no division of the issued shares between the exchanges.
Hi Sir,
Please advise on a situation like this, Let’s say if bought 100 share of Reliance a month back from NSE and holding them in my DMat account, now I am planning to buy another 100 shares of Reliance from BSE as the price seems be bit less and I will also hold the newly bought share in DMat account along with 100 shares that I bought earlier. Now, what are the consequences of an action like this? is this actually possible ? if so, what are they and what could be the better way to choose between exchanges.
Please do also advise me of material that I can read to understand more about the situations like above.
Thank you.
Yes, you can buy from two different exchanges. It will show as 200 shares in your DEMAT without any exchange associations.
Hello! Love your modules!
Please could you create a detailed chapter on Trade Life Cycle including all the players? All the available data is based on the US trade lifecycle! There have been so many changes in the Indian trading e.g. T+2 is no longer applicable, direct settlement etc.
Please please create a chapter for trade lifecycle for Indian market. I am a Business Analyst in Capital Markets and havent got hold of a detailed one on Indian markets till date. I think you would be the right team to do it!!!
Thanks,
Sonal
Sonal, sure. I will also update these chapters soon.
Varsity app on ios still shows “innerworth coming soon…” while more modules have been added as per the varsity webpage. Will this app get updated for content or have you permanently moved towards video modules? I am from old school and prefer reading to watch videos. Also can the “pdf” download option be re-enabled? That was much more convenient.
Hey, we are doing a major app update. This will change.
Sir,
A missing word in a line above which reads as “ Reliance is one the largest……..” it might be “ Reliance is one of the largest….”.
Sorry for disturbing you with small corrections. As you have written this with lot of pain, so I want it to be perfect in all respect. But I can only point out small typo errors.
Hope you don’t mind.
Thanks
Well wisher
Thanks for pointing that out. I’ll take a look at that.
Namaskara Karthik,
Happy seeing good content here which really helps us a lot from basics to advanced for beginners.
I have seen lot of educational content with reference to Stock markets in other indian languages in youtube which is good.But,the same when searched for our kannada language, the quality is very poor & less informative.
If you are fine, I don’t mind collaborating with your team in creating a similar content in Namma Kannada language which educates local folks and can be trusted when it’s from Zerodha!!
hope to hear from you soon!!
Thanks Santhosh. Please give us sometime on this, we are working on something. Keep an eye on our social media page.
My question is : suppose i have 1 crore in my trading account, and currently market is down by 2%, so i pick reliance
shares worth of 1 cr in longterm, after 5 days reliance went up by 2%,
so, will i earn 2lakh in just 5 days after charging all charges ?
do people really do this to increase their corpus ?
ye scam nhi na hai? ( is this is a scam kind of or not to make 2 lakh ?
Well, thats how stocks markets function. You buy a stocks, goes up, you benefit, and if it goes down, you lose 🙂
As far as the charges are concerned, check this – https://zerodha.com/charges#tab-equities
Hi Karthik, When you calculated the CAGR for 6 month then you simply doubled the value (17.26*2). However if we go by the formula then it should be [(3530/3030)^(1/0.5) – 1] = [(3530/3030)^2 – 1] = [1.1716^2 – 1] = 1.3726 – 1 = .3726 = 37.26%.
CAGR is best used to measure year on year growth. YOu can use absolute return here.