Demat account, its importance and how to open

 Demat is the short form of dematerialization.It is defined as the movement from the use of physical certificate into an electronic form.In demat the securities are held electronically instead of physical possession of certificates.
 If you want to save money on a bank a savings account is must.You need to open a demat account to buy or sell stocks.Unlike savings account no minimum shares are required to maintain a DP account.But there is an annual account maintenance fee, which may vary on different DP's.
 Demat account is used to keep all kind of financial assets and instruments like stocks, debentures, bonds, debt and NSC in a dematerialized form.The demat number is quoted When a trade or transaction take place in electronic mode.
 If you have 1000 shares of JP Associates, 100 shares of Reliance Industries and 10 shares of MRF, all your shares are listed on your demat account.If you buy or sell shares they will be adjusted in your account.
The features of Demat system
 Demat system was started in India on 1996 with the introduction of Depository Act.After that the purchasing and transfer of shares become easier because electronic sharing eliminates problems like signature mismatch, postal delays, risk of forgery and certificate damage.
Benefits of demat account
1. It is the easiest way to hold securities
2.One can immediately transfer securities using demat account (Fast)
3.Unlike Physical format it does not require stamp duty for transactions
4.No need to keep papers shares.So it is safe.
5.Paper works are very rare.
6.Transaction cost is very low compared to physical shares.
7.One can sell even if he has only one share.
8.Address change is very easy.Needed only once for all shares in case of change in residence.
9.No need to report the transaction to company.It is done by DP.
10.Only a single demat account is needed to hold all investments.
11.Account holder can do transactions from anywhere.
The difference between the broker and DP
A broker is a member of Stock exchange. They can buy or sell shares either on their own behalf or on behalf of their clients.
DP just provides a safe place to hold the shares bought by the clients.
How to open a demat account-
You have to approach a DP (Depository Participant) to open demat account.Most banks, brokers and other financial institutions are depository participants.You can choose the DP you like.
Complete list of depository participants are available on NSDL and CDSL Websites.

Essential documents required to open a demat account

Identity proof 
PAN CARD
Voters ID Card
Passport
Driver's license
ID card with photo of the applicant, issued by Central or State government and departments, statutory or regulatory authorities, public sector undertakings scheduled commercial banks, public financial institutions
Photo ID card issued by colleges affiliated to universities to their students, professional bodies such as ICAI, ICWAI, ICSI or Bar council to their members
Credit card or Debit cards
IT Returns/Electricity Bill/Land Phone Bill
Bank Pass Book

Address Proof
Ration Card
Passport
Voter ID Card
Driving licence
Bank Passbook
Electricity Bills (Verified copy only; not more than two months old)
Telephone Bills (Verified copy only; not more than two months old)
Verified copy of leave and license agreement
Verified copy of agreement for sale.
Identity card/ document with address (Issued by Central or State government, statutory or  regulatory bodies, public sector undertakings or scheduled banks
Identity card issued by public financial institutions or professional bodies like ICAI, ICWAI, Bar council etc to their members
Identity card issued by Colleges (affiliated to Universities) to students (Valid till the period of study)

Passport size photograph
Copy of PAN Card
You must have to produce original documents for verification at DP.

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Important terms used in stock market trading

Ask price (Offer price/ Offer)- Ask price is the price a seller is willing to accept for a security

Ask Size-The total number of shares in board lots of the most recent ask to sell a particular security.

Bid price-The highest price a buyer is willing to pay for a security is called bid

Bid Size-The total number of shares in board lots of the most recent bid to buy a particular security

Business Day- Any Week day from Monday to Friday, excluding statutory holidays is called business day

Clearing Day- Any week day from Monday to Friday on which the clearing corporation is open to effect trade clearing and settlement.

Clearing Number- It is the trading number of the clearing Participating Organization or Member.

Client Order- It is the order placed by a retail customer of a Participating Organization.

Close- Price of a scrip when market closes for the day

Day Order- It is the order placed for intraday, which is valid only for the day it is entered.

Daily Price Limit- It is the maximum price change (advance or decline) permitted for a futures contract in one trading session compared to the previous day's closing price.

Delist- It is the removal of a particular security's listing on a stock exchange.

Face Value- Face value is the nominal value value of a security stated by the issuer. In case of stocks, it is the original cost of the stock shown on the certificate.

Futures- Futures is a financial contract to buy or sell securities at a future date

Hedge- Hedge is a strategy used to reduce the risk of adverse price movements in a security, by making a transaction that offsets an existing position in a related security.

High- When the price of a scrip/ Indice reaches day's highest level while trading it is called high

Initial Public Offering (IPO)-The first issue of shares of a company to the general public through primary market.

Long- In stock market the term long refers to ownership of securities.If you are long on 1000 shares of a company, it means that you own 1000 shares of that company.

Low-When the price of a scrip/Indice reaches day's lowest level while trading it is called low

Market Order- Market order is the order that a trader makes through a broker to buy or sell securities immediately at the best current price.

Net Change- The difference between the previous day's closing price and the last traded price of a security or Index.

Open-Open is the first price of a scrip/indice when the market opens

Open Interest- The term open interest refers to the net open positions of a futures and/or option contract.

Open Order- An order to buy or sell securities that remains in the system for more than one day.It remains in effect until it is canceled by the customer or until it is executed or until it expires.

Par Value- The normal face value of a security is called par value.

Position Limit- It is the maximum number of futures and/or options contracts of one underlying security, any individual or corporate is allowed to hold at one time.

Previous Close- Close price of a scrip on previous day

Price-Earnings (P/E) Ratio- It is the valuation ratio of a company's current share price compared to its per-share earnings.It is calculated as
a particular security's last closing market price per share divided by the latest reported 12-month earnings per share (EPS).

Spread- The difference between the bid and the ask price of a security is called spread.

Strike Price- It is the price at which a specific derivative contract can be exercised.It is commonly used in option trading.The purchases and sales are known as calls and puts.In calls the strike price is the price that a security can be bought with in expiration date. In puts the strike price is the price that a security can be sold with in expiration date.

Trading Session- Trading session is the period during which the Exchange is open for trading.That is the time between the opening bell and closing bell on a trading day.

Volume- Number (quandity) of Scrips traded

52 week high (Year high)- When the price of a scrip/Indice reaches 52 week's highest level

52 week low (Year low)-When the price of a scrip/Indice reaches 52 week's lowest level

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Bank rate, Repo, CRR ,SLR and other key rates

Bank Rate
Bank rate is the interest rate charged by the central bank [in India Central bank is the Reserve Bank of India (RBI)] to commercial banks for the loans and advances.In other words, this is the rate at which Reserve Bank of India lends money to financial institutions and banks.If the bank rate is hiked, long term interest rates also tend to move in upward direction.It is because the banks use the fund they borrowed at a lower rate, for lending to individuals and corporates at a higher rate of interest to make profit.
When unemployment of a country is high, lower bank rate is helpful to expand the economy.It will lower the burden of borrowers.When inflation of a country is high, higher bank rates help to control the inflation by controlling the flow of money.
 In India the bank rate acts as the penal rate charged on domestic banks for shortfalls in meeting their reserve requirements (That is, cash reserve ratio and statutory liquidity ratio). The bank rate is used as a reference rate for indexation purposes by several organizations.
 In United States of America, the bank rate is the federal funds rate.It is controlled by the Federal Open Market Committee (FOMC). FOMC buys and sells securities to regulate money supply.The process of regulation of the economy by the Federal Open Market Committee (FOMC) is called  monetary policy.
 Increase in bank rates will affect the growth of Industries as the money circulation becomes very low.Hence only in case of higher or hyper inflation the central bank hike bank rates that too only for a short period.
Repo Rate
Repo (Repurchase) rate is the rate at which banks borrow funds for short term use from the central bank.Decrease in Repo rate helps banks to get money at a cheaper rate. On the other hand the increase in repo rate makes borrowing expensive.When liquidity crunch occurs in the market central bank increases repo rate.
 In case of an inflation, central bank will try to reduce the money supply by increasing the repo Rate. When repo rates are hiked, banks will borrow less amount of money from central bank and thus the amount of money they are lending to the public will decrease.If deflation occurs, central bank will want to inject more money supply and they will reduce the repo rate.
Reverse Repo Rate
Reverse Repo Rate is the exactly opposite to repo rate.It refer to the rate at which the Cental bank [In India Reserve Bank of India (RBI)] borrows excess money from domestic banks (private and public sector banks), when there is too much money flowing in the banking system.
Reverse repo rate helps to control the economic stability of the country.
 The defferance between repo and reverse repo is that in repo, the central bank injects liquidity and in reverse repo it absorbs liquidity.
Call Rate
The interest rate paid by the domestic banks for borrowing for their daily fund requirement is called 'Call Rate'. Banks some times need funds on daily basis, for that they borrow from other banks according to their requirements on a regular basis.
Cash reserve Ratio (CRR)
The meaning of CRR is Cash reserve Ratio.The domestic or national banks have to maintain or keep a portion of their deposit with Central Bank.This minimum ratio is known as Cash reserve ratio.It enables Central bank to control the liquidity in the system.It also ensures that a portion of bank deposit is risk free.In case of Inflation, the central bank increases the CRR rate and thus the available amount to banks becomes down.If the central bank decreases the CRR rate the availability of money increases.That is, more money will come on hands of banks.
Statutory Liquidity Ratio (SLR)
 SLR means Statutory Liquidity Ratio.The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio.Before providing credit to its customers the banks have to maintain or keep a part of its deposits in the form of gold, cash or other government approved securities as a part of SLR requirements.In India SLR is determined and maintained by Reserve Bank of India.With the SLR tuning, RBI can control the inflation through controlling credit growth and money supply.

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Inflation; Types and measures

 Inflation is a term used in Economics which is used to measure the rise in general level of prices for a bunch of goods and services over a period of time.When the price of a commodity or service increases the purchasing power of currency decreases.It results in the loss of value of money.Then each unit of currency can buy only fewer goods and services.
 Inflation can affect the economy of a country, positive and negative, in various ways.Economic experts are of the view that higher inflation is caused by the excessive growth of the money supply.
 If inflation gets totally out of control it affects the normal workings of the economy.This is called hyper inflation. Hyperinflation can lead to the abandonment of the use of the country's currency.
 There are two types of inflation
1. Demand Pull inflation- When there are less goods and more buyers, the demand increases.If the supply can not expand to meet the demand inflation occurs.This type of inflation is called demand Pull inflation.
2. Cost Push Inflation- Due to rise in input costs such as rapid wage increases,increase in corporate taxes and rise in imported raw material prices due to weak currencies the cost push inflation occurs.
 Inflation Rate
The inflation rate is the percentage rate of change of the overall price level of an economy over time.
 Measures of Inflation
  Inflation is usually estimated by calculating the inflation rate of a price index. usually Consumer Price Index or Wholesale price Index (WPI) is used to measure Inflation. In addition to this there are seven other important measures.producer price index (PPI), personal consumption expenditure (PCE) deflator, and gross domestic product (GDP) deflator, and a core version of each, which excludes food and energy.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) measures the prices of a bunch of goods and services purchased by a 'typical consumer'. In other words, the Consumer Price Index measures the changes in the cost of living.Some economists are of the view that the CPI overestimates true inflation by up to 1 per cent.
Producer Price Index (PPI)
The producer price index (PPI) measures the average change in the selling prices received by domestic producers to consumers and other businesses.Several products are sold to other businesses rather than consumers.So it differs from the CPI. producer price index measures both changes in revenue and changes in output.
Personal Consumption Expenditure (PCE) Deflator
The Personal Consumption Expenditure (PCE) measures the average change of price paid for all domestic purchases by all consumers.It measures the actual and imputed expenditures of households which also includes data pertaining to durable and non-durable goods and services.PCE deflator is also known as the PCE price index (PCEPI), 'PCE price deflator', and the 'Implicit Price Deflator'.
 The Personal Consumption Expenditure (PCE) is a volatile measure. Core PCE (CPCE) price index is less volatile than PCE Deflator which excludes the seasonal food and energy prices.
GDP Deflator
 In Ecocomics, the gross domestic product (GDP) deflator is used to measure the average change over time in the level of prices of all new, domestically produced, final goods and services.
It is calculated by using the following formula

GDP Deflator= Nominal GDP/Real GDP*100

Core Indexes
In addition to cite inflation numbers the economists usually refer to the Core version of that index.The core version excludes some volatile data.For example, In calculation of PCE the economist uses the oil and energy prices.But in Core PCE they exclude food and energy prices.

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Short term, Mid term and Long term stock trading

Short term

 Short term trading is an integral part of delivery trading.Trading of shares done from three days to six months is called short term.It depends upon Company news, reports, consumer’s attitudes and results.It is very risky and unpredictable due to the volatility of stock markets.
It is possible on future and options also in which the time duration is a few days to weeks.
 The trend of the stock is very important in short term trading.Chart pattern, Exponential Moving Average (EMA), Simple Moving Average (SMA), Moving Average Convergence-Divergence (MACD) and Relative Strength Index (RSI) have important role in short term trading.Pivot points, Camarilla levels, fibonacci retracement levels, fibonacci pivot levels, wave levels are also used to predict the short term trend.After realizing the trend one can buy or sell stocks. 

Mid term

 Mid term or medium term indicates intermediate investment.Analysts and traders have different opinion about the period of mid term.One intraday trader who holds the stocks for three to four weeks may consider this period as mid term.One long term trader who hold the stock for one to three years may consider this period as mid term.Most analysts and traders are of the view that share trading done from six months to less than one year is mid-term.Mid-term trading is also based on news and company performance.One may do the medium term stock selection on the basis of momentum and the fundamentals of the stocks.One may enter the trade after a break out above resistance or a break down below support according to his own trading system.As on Short term trading Chart patterns, Moving averages like EMA and SMA, MACD, RSI and other technical levels affect the trend.

Long-term

 Usually share trading done after one year is called long term trading or long term investing.Company's fundamentals, performance, news and market conditions affect long term trading.Buying under priced stocks with strong fundamentals (Value investing) work in long term trading.In long term trading small-cap and mid-cap stocks offer high profits than large-cap stocks.It is because small cap and med cap stocks earnings can grow easily than large caps.Growth rate and estimated returns are great concern while purchasing shares on a long term basis.

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Share trader, share trading and important types of stock trading

 The individuals or corporations who are engaging in the trading of securities is called 'stock trader' (share trader).The stock traders are mainly stock speculators.It is very acceptable to public, because the capital needed for stock trading is very less compared to stock market investing.They usually try to get profit from short-term price volatility.It is very risky as the market direction is unpredictable. On the other hand stock investors put money to buy securities which offer returns (such as interests, income or capital gains) for an extended period of time .It may be several months or years.The fundemendals of the stock is very important in investing.
 Buying or selling of shares in stock market (share market) is known as share trading (stock trading).
 There are two important types of share trading.Day trading and Delivery trading.

Day trading
Purchase and sale of the same scrip/indice on the same trading day is called day trading.It is also called as 'intra-day trading' and 'daylight trading'. All positions usually closed before the market close.That is One must sell stocks before 3.30,that he bought on the day and buy scrips that he sold on the day.Selling before buying is possible on delivery trading.But you must buy the scrip before market close.It depends on speculations.It is safe compared to short term trading, because there is no over night risk.Holding stocks which bought on intraday basis is some times risky.
 With the advantage of electronic trading and margin trading, day trading has become very popular among home traders.Stocks, Stock options, commodity futures, currencies, future contracts, equity index futures, and interest rate futures are some financial instruments available for intraday trading.
 The main risk factor of intraday trading is it can be either extremely profitable or extremely unprofitable.So it is important to keep stop loss on intraday trading.It is possible to make heavy profits on the day in day trading.So intraday traders are sometimes portrayed as 'gamblers' by investors.

Delivery trading
According to some analysts and traders, delivery trading is secure compared to day trading.Delivery means the legal transfer and receipt of ownership rights.You have to take the delivery of shares.There is a one plus two settlement (One trading day and two other days) for delivery trading.After getting scrips into your demat account you can sell them at any time.Normally it will take up to three days.You should have sufficient money to buy shares on delivery basis.Selling before buying is not possible on delivery trading.
 There are some advantages and disadvantages of Delivery Trading.The main advantage is that, the Loss of Fear of Money is very less compared to Intraday Trading. Even if the market price of your stock reduces, you can still wait for more days to get your expected price.Another advantage is that you can get dividend from your investments.The split of shares, amalgamations and bonus issues may also profitable to you.The disadvantage of Delivery Trading is the brokerage charges for Delivery Trading is high compared to day trading.Another disadvantage is that market crashes and some other factors may affect delivery trading.

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What does 'Share' and 'Share holder' mean in Stock market

What is share?
 For raising capital the companies divide its ownership into small parts and issuing to individuals or organizations.Each part is called a share.Shares of Corporations, mutual funds and Organizations are available.
 In financial markets, such as stock markets and commodities markets share is considered as an unit of account.The share holders of the company will get income from shares, which is known as 'dividend'.

Share Holder
 A share holder is a person or an institution who carries share in a company.Thus he is the owner of a part of that company.A person holding maximum shares in a company has maximum ownership.They will be the directors or Chairman in the company.
 A share holder is also known as 'stock holder' or a 'stake holder'. He can purchase the shares of public or private corporations.He has the right to sell his share any time.He is also eligible to nominate directors or vote for the directors nominated by the board.He will get all dividends declared by the company and also he can purchase new shares issued by the company at any time.
 A share holder purchases shares from an institution called Stock or commodity or currency market.The purchase process is going through a broker.
 One can buy shares from Primary market through initial public offerings (ipo) or bonds.They provides capital directly to the company.How ever the majority of share holders purchase shares from secondary market, in this case the share holder not directly providing capital to the company.

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Stock exchange; List of important stock exchanges in India and the World

What is stock exchange?
 Stock exchange is defined as an institution, that provides various services for brokers and traders for the purpose of trading in stock, bonds and other securities including derivatives.It also provides facilities for issue and redemption of securities and the payment of income and dividends.Shares issued by various companies, derivatives, pooled investment products, bonds and mutual funds are traded on stock exchanges.
 Modern stock exchanges have trading floor and electronic trading systems.Only the securities listed on stock exchange are available for trading.Only members of the stock exchanges can trade.Physical and electronic form of shares are available for purchase.Online trading facility  is available to traders through brokers.

List of Major stock exchanges in the World

Exchange                      Country/ Region

NYSE Euronext      United States/ Europe     New York City
NASDAQ OMX      United States/ Europe     New York City
Tokyo Stock Exchange      Japan     Tokyo
London Stock Exchange      United Kingdom     London
Hong Kong Stock Exchange      Hong Kong     Hong Kong
Shanghai Stock Exchange      China     Shanghai
TMX Group      Canada     Toronto
Deutsche Börse      Germany     Frankfurt
Australian Securities Exchange      Australia     Sydney
Bombay Stock Exchange      India     Mumbai
National Stock Exchange of India      India     Mumbai
SIX Swiss Exchange      Switzerland     Zurich
BM&F Bovespa      Brazil     São Paulo
Korea Exchange      South Korea     Seoul
Shenzhen Stock Exchange      China     Shenzhen
BME Spanish Exchanges      Spain     Madrid
JSE Limited      South Africa     Johannesburg
Moscow Exchange      Russia     Moscow
Singapore Exchange      Singapore     Singapore
Taiwan Stock Exchange      Taiwan     Taipei

The list of stock exchanges in India
[Maintained by the Securities and Exchange Board of India (SEBI)]

Ahmedabad Stock Exchange (ASE)
Bangalore Stock Exchange
Bhubaneshwar Stock Exchange (BhSE)
Bombay Stock Exchange (BSE)
Calcutta Stock Exchange (CSE)
Cochin Stock Exchange (CSE)
Coimbatore Stock Exchange (CSX)
Delhi Stock Exchange (DSE)
Gauhati Stock Exchange
Hyderabad Stock Exchange (HSE)
Inter-connected Stock Exchange of India (ISE)
Jaipur Stock Exchange (JSE)
Ludhiana Stock Exchange
MCX SX Exchange, Mumbai
Madhya Pradesh Stock Exchange, Indore
Madras Stock Exchange (MSE)
Magadh Stock Exchange, Patna
Mangalore Stock Exchange
National Stock Exchange of India (NSE)
Over the Counter Exchange of India (OTCEI)
Pune Stock Exchange
Saurashtra Kutch Stock Exchange
Vadodara Stock Exchange,Vadodara (VSE)
UP Stock Exchange (UPSE)
United Stock Exchange of India (USE)

Commodity Exchanges in India

Multi Commodity Exchange of India Limited (MCX)
National Commodity & Derivatives Exchange Limited (NCDEX)
Indian National Multi-Commodity Exchange (NMCE)
Commodity Exchange Limited ICEX.

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India's new stock exchange MCX-SX started trading today

 India's new stock exchange Mumbai based MCX-SX began trading today (Monday, 11th February 2013).The exchange is set to trade more than 1,100 equities, future and option segmant and its own new index called SX-40.It was unveiled in an event attended by P Chidambaram, the Financial minister of India in Mumbai on Saturday.
 MCX is the leading commodity exchange in India and with its arrival to equities Share market, a three way battle is expected in Indian stock markets between MCX-SX, Bombay Stock Exchange (BSE) and the market leader National Stock Exchange of India (NSE).
 The markets regulator Securities and Exchange Board of India (SEBI) has allowed MCX-SX to start trading in equity, equity derivatives, interest rate futures and wholesale debt segments.
 Trading hours are fixed similar to BSE and NSE. That is 9 am to 3:30 pm.There will be a Post close session for 20 minutes from 3:40 pm to 4:00 pm.The client code modification time will be upto 4:15 pm.
 The SX40 is a free float based index of 40 large cap - liquid stocks representing diversified sectors. The base value of the index was set to 10,000 with a base date of March 31, 2010.
 The future and Option Segment consits of 143 stocks.The trading hours are the same as BSE and NSE.That is 9:15 am to 3:30 pm.Trade modification end time cum give-up approval end time is up to 4:15 pm. The expiry is on every last thursday of the month as on NSE India.

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