Stock Market Basic to Advance - Lecture 2 .

Stock Market Basic to Advance - Lecture 2

1. What is meant by broker?

               A broker is an individual or a firm that facilitates the buying and selling of financial securities, such as stocks, bonds, or commodities, on behalf of clients. Here's what each of the points you provided means:

•  Broker executes transactions of clients in terms of stocks:                  This means that brokers carry out buy or sell orders placed by their clients in the stock market. They act as intermediaries between the buyers and sellers.

•  Broker takes commission, which is called brokerage:                           Brokers charge a fee, called brokerage, for their services. This fee can be a percentage of the transaction value or a flat fee per trade.

•  Broker acts like a middleman between the stock exchange and trader:                                                                                                                                  Brokers bridge the gap between investors/traders and the stock exchange. They provide access to the exchange and execute trades on behalf of their clients.

• Brokerage can be done by a person, but nowadays, it is done with the help of applications:                                                                    Traditionally, brokerage services were provided by human brokers who would execute trades over the phone or in person. However, with advancements in technology, many brokerage firms now offer online platforms or applications where clients can place trades themselves, often at lower costs and with greater convenience.

2. Where are stocks stored ?

Stock is nothing but part or ownership in a company or share in company.

Or

Stocks, also known as shares or equities, represent ownership in a company. When you buy stocks, you essentially become a partial owner of that company.

• Dematerialization (Demat): In many countries, including India, physical stock certificates are no longer issued or traded. Instead, stocks are held electronically in a Demat (Dematerialized) account. A Demat account is like a digital locker where your stocks are stored in electronic form.

• Broker-Provided Demat Account: As you mentioned, brokers provide Demat accounts to their clients. When you buy stocks through a broker, they are credited to your Demat account electronically.

•  Connection to Bank Account with which money can be transferred: Your Demat account is linked to your bank account. When you sell stocks, the proceeds are deposited directly into your linked bank account. Similarly, when you buy stocks, the purchase amount is debited from your bank account.

•  Broker provides Leverage, Tools and Charts: Besides providing Demat accounts, brokers often offer additional services such as leverage (borrowing money to invest), research tools, trading platforms, and access to charts and other financial analysis tools to help investors make informed decisions.

• In following photo we can see that, how charts look like. 

This Chart is provided by Broker in Demat Account along with various tools, indicators for ease of trading.

Stock Market Basic to Advance - Lecture 2  . 

3. What is meant by market Capital of particular stock?

•  Market Cap. = No. of shares  *  Cost of one share
• It is calculated by multiplying the current market price of one share of the company's stock by the total number of outstanding shares.

 Value of company depends on Market Capital of company not price of stocks.                                                                                                                                 Market capitalization is important because it gives investors an idea of the size of a company and its relative importance in the market. Companies with larger market capitalizations are typically considered to be more established and stable, while those with smaller market capitalizations may be riskier investments but also have the potential for higher growth. It can fluctuate based on changes in the company's stock price or the number of outstanding shares.                                                                                                                                                                             Example                                                                                                    

                If price of one share of MRF is 1,00,000 and share price of Tata Motors is 1000 that doesn’t means Market Capital of MRF Company is higher. For this, we have to take total number of shares of these companies also we have to take into consideration.                                Means, let’s us assume total number of shares of Tata Motors are 10,000 and its share price is 1000 means Market Cap. Of Tata Motors is 1, 00, 00,000   (1 Cr) while, if total numbers of shares of MRF are only 10 and share price is 1 lakh then its market cap. Comes to be 10, 00,000 (10 Lakh).             

                 From this example we clearly understood that Market Cap. Of Tata Motors is higher than MRF even if share price of MRF is higher. Means if we have to calculate Market cap. of any company in future then it can’t be decided only by price of share, for this total numbers of shares also taken into consideration.                  

                                                                                                                   

          4. What is meant by dividend ?    

• Dividend = Total Profit / Number of Shares   
•  A dividend is a distribution of a portion of a company's earnings, decided and managed by the company's board of directors, to a class of its shareholders. Essentially, when a company makes a profit, it may choose to distribute a portion of those profits to its shareholders as dividends.      

                                       

Example                                                                

          If Reliance made a profit of 1 crore rupees for the financial year and has a total of 1 crore shares, then the dividend per share would indeed be 1 rupee. 

  

           Dividend per Share = 1,00,00,000 / 1,00,00,000 = ₹1 So, each shareholder would receive ₹1 per share owned as a dividend.

            Dividends are typically paid out in cash, although they can also be issued as additional shares (stock dividends) or other forms of property. They are a way for companies to share their profits with shareholders and can be an important source of income for investors.

          Stock Market Basic to Advance - Lecture 2  .