Stock market basics

A share is a small piece of ownership in a company. If a company has 100 crore shares and you own 100, you own one crore-th of that business: a slice of its profits, its assets and its votes at shareholder meetings.

Companies sell shares to the public for the first time through an IPO (initial public offering). After that, the shares trade between investors on a stock exchange. The company does not receive money when you buy a share from another investor; you are simply taking over someone else's slice.

Share prices move because buyers and sellers keep changing their view of what the business is worth. Earnings, interest rates, news, fear and greed all feed into that view every second the market is open.

India has two main stock exchanges: the National Stock Exchange (NSE) and the BSE (formerly Bombay Stock Exchange). Most trading volume, and almost all index options trading, happens on NSE.

• SEBI (Securities and Exchange Board of India) regulates the markets, brokers, mutual funds and research analysts.
• NSDL and CDSL are the depositories. They hold your shares electronically in your demat account.
• Clearing corporations (such as NSE Clearing) guarantee that every trade settles, so you never depend on the other side paying up.
• Brokers are your gateway. You place orders through them; they route orders to the exchange.

To trade you need a trading account (with a broker) and a demat account (with a depository participant, usually the same broker), both linked to your bank account and PAN.

An index tracks a basket of stocks so you can see how a whole market or sector is doing with one number.

Free-float weighting means a company's weight depends on the shares actually available to trade, not on shares locked with promoters. That is why a few heavyweights, such as the largest banks and IT companies, can move the Nifty on their own.

Equity trades in India settle on T+1: if you buy on Monday, the shares reach your demat account on Tuesday. The exchange holiday list is published every December for the next year.

Prices can only move within price bands (circuit limits) set by the exchange for each stock. Index-wide circuit breakers pause all trading if the Nifty or Sensex falls or rises 10%, 15% or 20% in a day.

• Market order: buy or sell immediately at the best available price. Fast, but you accept whatever price you get.
• Limit order: buy or sell only at your price or better. You control the price, but it may not fill.
• Stop-loss order (SL / SL-M): becomes active when price touches your trigger. Used to cap a loss.
• Intraday (MIS) vs delivery (CNC): intraday positions must be closed the same day; delivery puts shares in your demat.

Use limit orders in anything thinly traded, including far out-of-the-money options. A market order in an illiquid contract can fill far from the last traded price.

Every trade carries brokerage, Securities Transaction Tax (STT), exchange charges, SEBI fees, stamp duty and GST. Intraday traders feel these most because they pay them many times a day. The F&O charges calculator on ExpertView breaks them down.

Profits are taxed differently for delivery investing (capital gains) and for intraday or F&O trading (business income). Rules change with budgets, so check the current rates with a tax professional.

Most people who try short-term trading lose money. SEBI's own studies found that about 9 in 10 individual F&O traders made net losses. Learn slowly, paper trade first and never risk money you cannot afford to lose.