Stock Market Foundations

1. What the stock market is

A stock market is a marketplace where companies sell small pieces of ownership, called shares, and where people then buy and sell those shares with each other. It does two jobs. It helps companies raise money to grow, and it lets owners sell when they need cash. Because owners can sell, people are willing to buy shares in the first place.

• Primary market: a company sells new shares for the first time, for example through an IPO (initial public offering). The company receives the money.
• Secondary market: investors trade shares among themselves on an exchange. This is where almost all daily trading happens. The money moves from one investor to another, not to the company.
• A listed company is one whose shares are traded on a recognised exchange, such as NSE or BSE.

2. What a share is and how you earn from it

Owning one share makes you a part-owner of that company, however small your stake. Your money can grow in two ways, and it can also shrink. Nothing is guaranteed.

• Capital gain: you sell for more than you paid. Example: you buy 10 shares at ₹500 (₹5,000) and sell at ₹550 (₹5,500). The gain is ₹500 before costs and tax.
• Dividend: a share of profit the company pays to shareholders, usually per share. Example: ₹10 per share on 10 shares gives ₹100. Dividends are decided by the company and are not guaranteed.
• Capital loss: if the price falls, your holding loses value. Example: you sell the same 10 shares at ₹420 and lose ₹800 before costs.
• Limited liability: as a shareholder you can lose the money you invested, but you are not responsible for the company's debts beyond that amount.

3. Who is who in the market

Several parties work together for a trade to happen and for your shares to be safe.

• You (the investor): decide what to buy and sell, and bear the gains and losses.
• Broker: a SEBI-registered firm that takes your orders and sends them to the exchange.
• Stock exchanges (NSE and BSE): run the trading system where buyers and sellers are matched.
• Clearing corporations: guarantee that trades settle, by taking the risk that one side does not pay or deliver.
• Depositories (NSDL and CDSL): hold your shares electronically in your demat account.
• SEBI (Securities and Exchange Board of India): the regulator that sets rules, licenses intermediaries and protects investors.
• Asset management companies (AMCs): run mutual funds, which pool money from many investors.

4. Open the accounts you need

To invest in shares you need three things: a bank account, a demat account and a trading account. Many brokers open the demat and trading accounts together.

• KYC (Know Your Customer): proof of identity and address, usually PAN and Aadhaar, a bank account, a photograph and a signature. It can often be done online.
• Demat account: holds your shares in electronic form. You do not receive paper share certificates for shares held this way.
• Trading account: lets you place buy and sell orders through your broker. Your money for trades sits here.
• Nomination: name a nominee so your holdings can pass to them safely if something happens to you.
• Choose a SEBI-registered broker. Check their registration on SEBI's website before you open an account, and be wary of anyone who promises returns.

5. Market timings and trading sessions

Indian equity markets trade on working days, and the timings below are typical. Check the exact times and the holiday list on the NSE or BSE website each year, because they can change.

• Pre-open session (around 9:00 to 9:08 for orders, then price discovery until 9:15): orders are collected and an opening price is set.
• Normal trading session (around 9:15 to 15:30): continuous buying and selling. This is when most trades happen.
• Closing session after 15:30: used to settle the closing price for certain orders. Check current timings on the exchange website.
• Exchange holidays: the market is closed on published holidays, so no trades happen on those days.
• Orders placed outside market hours are usually held until the next session. Some brokers offer after-market orders (AMO) that are sent when the market opens.

6. Order types, explained

An order is your instruction to the exchange. The type you choose controls how sure you are of the price and whether the trade will happen.

• Market order: buy or sell now at the best available price. The trade is very likely to happen, but the price can move before it fills.
• Limit order: you set the price. Example: buy only at ₹495 or lower. You control the price, but the order may never fill if the price does not reach your limit.
• Stop-loss (SL) order: a limit order that becomes active when the price reaches a trigger. Example: trigger ₹240 with limit ₹239 for a sell means: when the price falls to ₹240, try to sell at ₹239 or better.
• Stop-loss market (SL-M): becomes a market order at the trigger price. It is more likely to fill, but the price may be worse than the trigger.
• Validity: a Day order lasts for the session. An IOC (immediate or cancel) order fills right away or is cancelled.

7. Product types: delivery and intraday

Your broker will ask which product you want for each order. The choice must match your plan, because the rules and risks are different.

• Delivery (usually called CNC): you buy and hold the shares in your demat account for as long as you want. You pay the full price. This is how most long-term investors invest.
• Intraday (usually called MIS): you buy and sell within the same day. You must close the position by a cut-off time, and brokers may square it off automatically. It uses margin (borrowed money) and can cause large losses.
• Never use intraday or margin products without understanding them. Start with delivery trades while you learn.

8. Settlement: when shares and money actually move

A trade does not change ownership on the spot. Settlement is the process that moves the shares and the money. In India, equity trades settle on T+1, which means one trading day after the trade.

• Example: on Monday at 10:00 you buy 10 shares. The order is executed on Monday and you receive a contract note.
• On Tuesday (T+1), the shares are credited to your demat account and the money is debited from your trading account, if the settlement goes through.
• After you sell, the sale money is usually available to withdraw after settlement. Check your broker's rules on when it becomes available.

9. What trading costs you

Every trade has costs that come out of your return. Charges vary by broker and change over time, so read your broker's charge page and your contract note.

• Brokerage: the broker's fee for executing the trade.
• Exchange transaction charges and SEBI turnover fee: charged by the exchange and the regulator.
• Stamp duty: charged on the buying side.
• STT (Securities Transaction Tax): a government tax on the transaction, with rates that depend on the type of trade.
• GST: charged on brokerage and some other charges.
• Depository charges: charged when you sell shares from your demat account.

Illustration: you buy ₹5,000 of shares and sell at ₹5,500, with ₹60 of total costs. Your net gain is ₹440, not ₹500. Costs matter most for small or frequent trades.

10. How prices move

A share price changes when buyers and sellers disagree about its value at the current price. Understanding the basic mechanics helps you read the screen and avoid surprises.

• Order book: shows the current buy orders (bids) and sell orders (asks) at each price. The best bid is the highest buy price; the best ask is the lowest sell price.
• Spread: the gap between the best bid and the best ask. A narrow spread usually means a liquid stock.
• Volume: the number of shares traded in a period. Higher volume means more participation.
• News, company results, economic data and global markets all shift demand and supply, and so move prices.
• Circuit limits: an exchange sets a daily upper and lower price band for many stocks. If the price hits a band, trading in that stock may pause or be restricted. Limits can differ by stock.

11. Indices, market size and company categories

• NIFTY 50 (NSE) and SENSEX (BSE) are indices that track large companies. They show the overall direction of the market.
• Market capitalisation = share price × total number of shares. SEBI groups listed companies into large, mid and small caps by market-cap rank. Check SEBI's current definition.
• Large caps are usually more stable. Small caps can grow faster, but their prices can swing much more.
• An index is a benchmark. Compare your returns with it to judge how well you are doing.

12. Taxes on your gains (basics only)

Gains from shares are taxed. Tax rates and rules change with the Union Budget, so always check the current rules with a tax professional or the official income tax website before you file.

• Profits from frequent or intraday trading are usually treated as business income.
• Profits from shares held as investments are capital gains. The tax depends on how long you held the shares (short-term or long-term).
• Keep your contract notes, P&L statements and bank records. They are needed when you file your return.

13. Protect yourself from scams

Scams target new investors. The warning signs are often easy to spot once you know them.

• No one can guarantee returns from shares. Any promise of fixed high returns is a warning sign.
• Be careful with stock tips on WhatsApp or Telegram, and with groups that ask for money to 'join' a trading club.
• Check that anyone advising you or managing your money is SEBI-registered, using SEBI's list of registered intermediaries.
• Never share your OTP, PIN, or demat and trading login details with anyone.
• If you have a complaint, SEBI's SCORES portal is the official way to raise it.

14. Your first-steps checklist

• Set a goal and a time frame, for example saving for a house in seven years.
• Build an emergency fund of about 3 to 6 months of expenses before you invest for growth.
• Learn in this order: Stock Market Foundations, Investing, SIP and Mutual Funds, Reading Charts, Risk Management. Then move on to the rest.
• Start with a small amount that you can afford to lose.
• Keep a journal of every decision, including why you made it. Review it monthly, not daily.