Ashish Jain (आशीष जैन), Deft Derivatives Trader in US, Australia & Indian Markets
Répondu il y a 13w · L'auteur dispose de réponses 51 et de vues de réponses 1.3m
The need of Stock Markets:
A long time ago, humans ran businesses with just their own money. The businesses they ran were small and they grew the businesses only with their own profits. It still happens with a lot of small traders. You will find many small and medium enterprise businessmen around you. However, not all businesses can be built with your own money or can be grown to large scale. What if you wanted to build a new factory that costs more than a million dollars? Banks won't lend money to younger companies or will lend at higher interest rates and your friends won't have that much. Let's now understand the stock and stock market continuing the same example.
Stock market solves many equations for an entrepreneur:
Let's say you want to start a company that makes stuffed toys. Before you can make toys, you need to build a factory. You need to buy sewing machines and fabric and thread and boxes to ship them in. You need to hire workers and start production. This money required to start the company is called 'capital d'investissement'. For eg., you need Rs. 2 million to start the company. Of this amount, you have Rs. 1 million and you need additional capital of Rs. 1 million.
How does the stock market work?
So you launch the Initial Public Offer (IPO) to find some hundred people, each of whom is ready to invest Rs. Ten thousand. In exchange, you will sell 50% ownership to these 100 people and they each will own 1/200th of the company. Below will be the shareholding pattern of this company:
You (Owner):% 50
Ici le capitalisation boursière of this company is said to be Rs. 2 million and the management (or you) holding 100 shares and each of the 100 investors bought 1 share for the price of Rs.10000/-. Of course, they can't physically break off 1/200th part of the factory, but it means they're entitled to a share of the profits. Once you get the factory up and start selling stuffed toys, you will have income every year. Some of that income goes to pay the company expenses (like raw materials, staff salaries and electricity etc) some of it we use to buy better equipment and improve production. But after all that, we have money left over, that's called profitez .
And that gets evenly distributed among the people who invested, who are called the "actionnaires", the money they get is called a "dividende". For eg., if the profit was Rs. 50,000/- in the first year then you will get Rs.25000/- (because you hold 50% ownership) and each of the investors(or shareholders) will get Rs.250/- (1/200th of the profit).
Who decided the price of stocks? How the valuation takes place?
Now, if someone else wants to be a shareholder, he goes to one of the existing shareholders and asks to buy his share. They decide how much the buyer is willing to pay, based on how the company's doing now, and how they expect it to do in the future. If the company's making a lot of money and is expected to make a lot more in the future, the share becomes worth more money, because there are good dividends and good growth expected in future. If the company's doing badly, the share becomes worthless. In short, if the company is doing good and expected to do more better, existing shareholder might be willing to sell his share for Rs.11000/- (which he bought in Rs.10000). He would have profit on investment +dividends earned et ses realized gains would be 1250. He will be called 'vendeur' and the one who bought it in Rs.11000/- will be called 'acheteur'. This buyer may have done a lot of research on the company and toys sector and hence may have longer investment horizon and he may not sell his shares in near future. This is how investment in the stock market works that involves research, knowledge and conviction.
But people speculate more and research less, and they might invest in a company at higher rates expecting a great season, great management or sometimes just because it is discussed in some WhatsApp group or referred by some analyst ora friend. Since they don't know much about the company, they might buy the shares of this toy company from an existing shareholder for Rs.10500/- and in few days, but after few days other shareholders are willing to sell their shares for Rs.9000/-. So, he is incurring the loss on investment for Rs.1500/-. This is the unrealized loss since he did not sell his shares, only the value of the company has been decreased while he was holding the shares of the company. This is how gambling in the stock market works that one invest only on conviction or luck and not facts.
What is Stock Market?: There's a central market where all the shares are bought and sold. When people are willing to pay more for a company, the stock price goes up. When more people want to sell than want to buy, the price goes down. There are generally always buyers and sellers in the stock market for each company. It is also known as 'Bourse des valeurs'. In India, we have 2 major exchanges called 'Bombay Stock Exchange' and 'National Stock Exchange'.
Who Regulates the Stock Market? le Commission des valeurs mobilières et des changes (SEC) regulate the US markets, the Australian Securities and Investment Commission (ASIC) regulates the Australian stock market and the Securities and Exchange Board de l'Inde (SEBI) is the regulatory body charged with overseeing the Indian stock markets. A federal agency that is independent of the political party in power, the SEBI states its "mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."
Why stock markets are important?
The reason the stock market is so important to the country is that that's how individuals money gets invested in businesses, which is how businesses get money to start and to grow. If everything works well, the business does well, the stockholders make money and the public is able to buy the things the business produces.
Sowmay Jain, Investor & Blogger
Mise à jour il y a 66w · L'auteur dispose de réponses 556 et de vues de réponses 4.1m
Réponse d'origine: How exactly does trading (stock market) work?
Understand stock market with an lucrative example
For a new investor, the stock market can feel a lot like legalized gambling - "People place their bets! Randomly choose a stock based on gut instinct and water cooler chatter! If the price of your stock goes up -- and who knows why? -- you win! If it drops, you lose!" Isn't that why so many people got rich during the dot-com boom -- and why so many people lost their fortunes in the recent recession?
Not exactly. But unfortunately, that's how many new investors think of the stock market -- as a short-term investment vehicle that either brings huge monetary gains or devastating losses. But the more you learn about stocks, and the more you understand the true nature of investment, the better and smarter you'll manage your money.
So, lets dive in.
The whole description will revolve around one example. So, keep an eagle eye at this example.
Imagine yourself as an entrepreneur. One day you got freaking idea to initiate a start-up of coffee chain shops (like CCD). Initially you injected your saving of 10 lakh and open a shop at your locality. Your shop become popular and reporting booming profit year after year.
Again you got freaked and decided to apply for funding for further expansion of your startup. You're in need of angel investors and venture capitalist to pump your company so you started your pitch session and many liked your idea too.
Within couple of months, you got lot of investors to fuel your venture. Now you're handling a company with a valuation of 1 million.
(Don't take it easy, it's not as easy as described couple of paragraphs. There are lot of legal formalities, investors requirement which slow down the operation of company. Let's get back to our coffee chain shop example as I'm here to tell you how to manage a start-up? (If have query ask in comments)
If you want to launch this chain shop (in real) and are interested in recruiting a pool of investors, where would you find these people? You could place an ad in the paper or online, or you could simply contact friends and family or you'll email someone, you found (somewhere) or whatever.
But what if some of your initial investors decide a year later that they want to sell their shares? They would each have to go out and find a new buyer, which might prove clumpsy, especially if the company isn't performing very well.
Alors, some naughty minds established a system (known as stock market) to solve this problem. A common place where people can sell their shares of companies (which they bought years or months or even days ago) in publicly traded companies. The Bombay Stock Exchange (BSE) is an example of such a market. Another is NSE.
(But only public companies are allowed to exchange shares with retail investors like you and me, so in order to make your coffee chain shop shares exchangeable, you've to convert your company from private to public)
You may know about e-bay where you can exchange your products on auction, same system applies with stock market ~ shares are traded at auction.
Now you got great insight into stock market so you decided to issue your coffee chain shop shares to public. This means ~ now you're not receiving funds from only bunch of private investors instead you fetched an enormous amount from all over the nation. You even don't know who bought the shares. What you only know is that you received a specific amount from lakhs of peoples who were interested in your business of coffee chain shop.
If you take a movement to think about it, stock market provides a miraculous service. You can exchange your cash that you don't need today for a share in claim which may grow in value over time (based on your tactics). This process also goes in reverse that you can also exchange your shares for cash.
En règle générale, retail investors (like you and me) are not entitled to take part in management but still we are entitled to receive dividends.
A common question asked by many beginners that Who decides the price?
As you can see that the price of stocks vary on daily basis. The movement you issued it then it is fixed on the basis of free market demand (bid) and supply (ask). If demand>supply, price hike and if demand
I use the example of coffee chain shop to drive your attention on the CCD chain shops which is the first coffee chains gone public. You can get enormous information regarding there IPO process and how it get quoted on stock market. Google it or Quora it.
If you've any more queries in your mind then shoot back a comment, I'll read and respond to each one of them.
Also you may have a "supermarket" that sells food nearby your house. The reason you go the supermarket is because you can go to one place and buy all of the different types of food that you need in one stop -- it's a lot more convenient than driving around to the butcher, the dairy farmer and the baker.
The BSE is a supermarket for stocks. It can be thought of as a big room where everyone who wants to buy and sell shares different companies can go to buy and sell.
. . .
J'écris à Sowmayjain.com
Top Analyst, works at 12Stocks.com
Mise à jour il y a 178w · L'auteur dispose de réponses 69 et de vues de réponses 77.4k
Réponse d'origine: How does the share market work? How do stock prices of a certain company go up and down?
Let us take a simple example. You decide to start a hamburger restaurant and invest $50,000 of your own money. Your homestyle hamburger takes off and profits start rolling in. You want to start another restaurant to expand your business. To get funds for the new shop, you decide to issue 10 shares of your overall business (so each share represents 10% worth of your business).
Four of your friends see that your restaurant business is doing great and decide to invest. So each friend buys one share (i.e 10 % stake of your business) for $10,000 (so now your company is worth $100,000). You keep six shares for yourself giving you 60% stake in the company. Both your restaurants do really great business.
It is a year since your friends invested. Now, one of them wants to sell his one share as he needs money to buy a motorboat. Another friend of yours decides to buy that one share as he notices that your restaurants are always full of people. He buys that one share i.e 10% stake for $15000 as you now have two well established restaurants (so now your company is worth $150, 000).
Then your worst nightmare comes true. There is a mad cow disease scare. On top of it there are rumors that "Five Boys Burgers" will open up their shop right opposite one of yours. Your business plummets. Now, one of your friends wants out as he sees plummeting profits in the future. In absolute panic that your restaurants might go out of business, he sells his one share i.e 10% stake for just $6,000. Another friend of yours decides to buy that one share for $6,000 as he feels that your business is undervalued. He feels mad cow disease scare is temporary and folks who like your homestyle burgers will sooner or later come back.
And he is correct! Based on lab results, the mad cow disease scare proves to be false. Your profits are back and even more folks come as the neighborhood becomes popular for great burgers. Folks coming to Five Boys see your restaurant and decide to check it out too. You are making money hand over fist. Your friend who bought that share for $6,000 now sells it for $18,000 !
So the share prices of your company has gone up and down - sometimes based on fact and sometimes on rumors. The share price of your company when it went "public" (when you allowed your friends to invest in your business) was $10,000 per share. As your business expanded successfully, the share prices soared to $15,000 per share. Then there were rumors and new competition and your share price plummeted to $6,000 per share. When the rumors subsided and profits came back along with new customers, the share price immediately soared to new heights of $18,000 per share.
Share market is basically this but with millions of players trading shares of a company everyday. The prices of the shares go up and down based on perceived value of business based on multitude of factors (like interest rates, govt changes, new products, competitors, gas prices, etc). But in essence , whether it is AAPL (Apple Computer) or your burger restaurant, profits (or future profits) drive the share prices (value) of your business over long term. The price of the shares at any given point during the day may vary by perceptions, emotions and needs of your shareholders.
Répondu il y a 192w
Réponse d'origine: How does the stock market work? How are stock prices of a company decided at particular times, and what factors are responsible for its high and lows?
You can think of a stock as equity in a business. As opposed to debt, equity doesn't need to be paid back. Equity can be defined as an ownership claim on a business.
You can think of the stock market as a foule of people, composed of buyers and sellers trying to come to an agreement as to what the correct price of a stock should be. Each time a trade occurs, a buyer with the highest bid buys from a seller with the lowest offer.
Stock prices go up when buyers buy stock agressivement (hitting offers, lifting bids). And stocks prices go down when sellers sell agressivement (hitting bids, lowering offers).
Stocks clearly out perform all other asset classes over the long run:
Now I find stocks to be a very funny thing because paradoxically no asset class creates more wealth than stocks and yet the average stock investor doesn't even come close to the returns stocks offer.
Here is how the average investor performs relative to other asset classes:
The average investor even under performs inflation, so net they perdre de l'argent.
Now, how does one reconcile this paradox? So for an investor to get the full return stocks offer, he should just buy a low cost index fund and hold it forever right?
But even that doesn't seem as easy as it sounds because stocks have insane volatility.
For example the Dow Jones currently (1/29/15) sits at 17,400.
In 2014, the Dow fell 9,956 points on down days. And it rose 11,202 points on up days.
In the past six years the Dow fell 55,962 points on down days. And it rose 67,029 points on up days.
The average person simply cannot stomach this kind of volatility even if invested passively in index funds.
So what accounts for all of this volatility? Are moves in prices actually driven by underlying volatility in earnings? It doesn't seem so. Earnings, especially when normalized, are remarkably stable compared to price. So the thing that drives price is really the madness of crowd behavior. Robert Shiller won a Noble for his research on this.
Another thing about index funds: They buy stocks regardless of valuation. Index funds assume everyone is rational, and markets are efficient, and all stocks are perfectly priced. So when the entire index becomes massively overvalued, this can happen to an index fund:
Even indexes can lose over 80% net inflation and it can take decades to recover. The Nikkei still hasn't recovered its high water mark 25 years later.
Mike Tyson probably wasn't thinking of markets when he said "Everyone has a plan until they get punched in the face." But that's exactly what volatility does to an investor's plan for his portfolio.
I have yet to even talk about the numerous thinking errors and biases every en bonne santé mind falls victim to. You can read more about that here:
Liste des biais cognitifs
One of the greatest geniuses ever, Isaac Newton said: “I can calculate the motion of heavenly bodies but not the madness of people.” He said that after he blew his fortune in the market. His investment experience looked somewhat like this:
Fidelity did a study on whom amongst their brokerage customers had the best returns. And they found the most hilarious answer: the people that forgot they had a brokerage account. They either bought stocks or inherited them decades ago and forgot all about them. They had the highest returns. The miracle of compounding takes décennies to show its immense power. Warren Buffet earned 95% of his wealth après he turned 65. Successful investing is not a get rich quick scheme but rather a life-long marathon.
You may think you can avoid the difficulty of investing in the market and simply find a great investment adviser or hedge fund manager to invest your money for you. But even the vast majority professional investors underperform passive indexing after expense deductions.
Extremely skilled advisers and hedge fund managers do exist but have zéro interest in your money unless you have millions to invest or you have billions to invest as a sovereign wealth fund.
A person only has a chance at building wealth in stocks if they see it as buying businesses. Read 5 years worth of 10ks before investing a penny. Make sure you understand the business. Stick to high quality businesses with reasonable valuations. Avoid timing the market but remember downside momentum can be very powerful. Value, Quality, and Momentum are the three factors that generate the highest returns.
If you prefer to invest in indexes instead, then I advise using the CAPE (cyclically adjusted price-earnings) ratio to avoid bubbles.
I find the stock market to be a very funny place. In theory it creates immense wealth. But in practice, the human mind seems incapable of being patient for décennies, and not following the herd of investors that chase after bubbles. The market is not for the faint of heart but "faint heart never won fair lady."
Erich Senft, CTA, commerçant, enseignant | Aider les traders pour les années 20 | SupportandResistance.com
Mise à jour il y a 96w · L'auteur dispose de réponses 167 et de vues de réponses 414.2k
You've gotten some very good answers here already, but allow me to play the Devil's Advocate for a moment and introduce you to the dark side of the Stock market: market manipulation.
I'm not a conspiracy nut; however it's hard to ignore that the Stock market can be manipulated to the benefit of the insiders. How do they do that? Mostly through the news and disinformation.
Here's a very simple example of how Wall Street insiders can affect the prices of a stock(s):
You own a Widget company and while demand is steady you'd like to sell more widgets. You decide to tell the news people that you foresee a shortage of widgets in the near future (whether it's true or not is irrelevant).
Anticipating the shortage, people begin buying more widgets. As a result demand increases and so does the price.
This goes on for several months. You're happily selling more widgets but now you realize you're low on inventory and can't keep up with demand. You might become a victim of your own success!
You again contact the news people but this time you tell them that the widget crisis has been averted. Demand for widgets declines and some people even sell their widgets back to you at a discounted price, because they don't need them anymore.
Before long your shelves are full again and you think about doing the whole thing all over again....
Sound far fetched? Not at all.
In fact, this was the premise behind Richard Ney's (1916- 2004) book: The Wall Street Gang. In case you think Mr. Ney doesn't know what he's talking about you should know he forecast the market crash in May 1962, the rise and decline of January 1966, and the crash of October 1973.
Even Richard Wyckoff (1873 - 1934), whom many believe to be the Father of modern trading, refers to the different stages of the Market Cycle as Accumulation, Mark Up, Distribution and Mark Down - all references to how the market insiders manipulate the market at specific times during the trading cycle.
Every market that we invest in is manipulated in one way or another. Whether secretly by the market makers in the Stock market, or more publicly by the Central Banks in Forex, who intervene regularly to "adjust" their currencies.
The best we can hope to do as traders is stay on the same side of the trade as the insiders who are steering the market.
As I said, I'm not a conspiracy nut; rather I'm just stating a fact of trading life.
This is why it's so important for traders to correctly identify which stage of the market cycle the market is in AND why traders need to control their risk in case they're wrong about their trade.
Because at the end of the day these are the only two things you really have any control over.
3 Ce qu'un commerçant peut faire maintenant pour augmenter ses bénéfices commerciaux.
Ankit Jaiswal, Chercheur associé à la Kredent Academy (2015-present)
Répondu il y a 7w · L'auteur dispose de réponses 462 et de vues de réponses 402.2k
How does the stock market work?
Les marché boursier consists of two main sections, the primary market, and the secondary market. The primary market is where new issues are first sold through initial public offerings (IPOs). Institutional investors typically purchase most of these shares from investment banks.
The worth of the company going public and the number of shares issued will determine the opening price of the IPO stock. All subsequent trading happens in the secondary market, where participants include both institutional and individual investors. A company uses the money raised from its IPO to grow, but once its stock starts trading, it does not receive funds from the buying and selling of its shares.
Stocks of larger companies are usually traded through exchanges. Such exchanges exist in major cities all over the world, including London and Tokyo. Exchanges are entities that bring together buyers and sellers in an organized manner. On exchanges, stocks are listed and traded. Today, the execution of most transactions is by electronic means. Even the stocks themselves are mostly held in an electronic format, not as physical certificates.
Who decides the price?
Every time a stock is sold, the exchange records the price at which it changes hands. If, a few seconds or minutes later, another trade takes place, the price at which that trade is made becomes the new market price, and so on. Organized exchanges like the National Stock Exchange will occasionally suspend trading in a stock if the price is excessively volatile, if there is a severe mismatch between supply and demand (many people wanting to sell, no one wanting to buy) or if they suspect that insiders are deliberately manipulating a stock’s price. But in normal circumstances, there is no official arbiter of stock prices, no person or institution that “decides” a price. The market price of a stock is simply the price at which a willing buyer and seller agree to trade.
When trying to figure out which valuation method to use to value a stock for the first time, most investors will quickly discover the overwhelming number of valuation techniques available to them today. There are the simple-to-use ones, such as the comparables method, and there are the more involved methods, such as the discounted cash flow model. Which one should you use?
Unfortunately, there is no one method that is best suited for every situation. Each stock is different, and each industry sector has unique properties that may require varying valuation approaches.