five tips to invest and make money

For beginners

1. The best stocks to buy or invest are those listed in leading indexes like for Indian Market one can choose stocks from Nifty or Sensex.

2. Avoid Trading in penny stocks as much as possible unless you are well aware of the basic fundamentals of the company.

3. Do not make hasty decisions while investing.

4. During initial stage, a newbie in trading can take help from various web-sites giving stock market trading tip.

5. Avoid investing during critical political or economical situations as such any untoward incident can severely influence the market negatively.

What are penny stocks?

1. Penny stocks, as the name suggests, are the shares which are very cheap.
2. In the context of Indian Share Market, there are hundreds of shares having price less than 20 rupee per share.
3. There are shares having value of even less than a rupee.
4. Penny stocks are shares of companies having very low market capital; but because they are listed in stock exchange, people trade in them too.
5. These shares are usually risky and should not be traded.
6. But, sometimes when a company, which was not doing well in past years starts to perform well due to certain fundamental reasons, the value of such penny stock rises with an incredible pace.
7. One can visit the web site of National stock Exchange of India and search for securities less than 20/- rupees to have some outlook about penny stocks.

Free Float Market Capitalization

Many different types of investors hold the shares of a company! The Govt. may hold some of the shares. Some of the shares may be held by the “founders” or “directors” of the company. Some of the shares may be held by the FDI’s etc. etc!

Now, only the “open market” shares that are free for trading by anyone, are called the “free-float” shares. When we are calculating the Sensex, we are interested in these “free-float” shares!

A particular company, may have certain shares in the open market and certain shares that are not available for trading in the open market.

According the BSE, any shares that DO NOT fall under the following criteria, can be considered to be open market shares:

* Holdings by founders/directors/ acquirers which has control element
* Holdings by persons/ bodies with "controlling interest"
* Government holding as promoter/acquirer
* Holdings through the FDI Route
* Strategic stakes by private corporate bodies/ individuals
* Equity held by associate/group companies (cross-holdings)
* Equity held by employee welfare trusts
* Locked-in shares and shares which would not be sold in the open market in normal course.

A company has to submit a complete report about “who has how many of the company’s shares” to the BSE. On the basis of this, the BSE will decide the “free-float factor” of the company. The “free-float factor” is a very valuable number! If you multiply the "free-float factor" with the “market cap” of that company, you will get the “free-float market cap” which is the value of the shares of the company in the open market!
A simple way to understand the “free-float market cap” would be, the total cost of buying all the shares in the open market!

So, having understood what the “free float market cap” is, now what? How do you find out the value of the Sensex at a particular point? Well, it’s pretty simple….

First: Find out the “free-float market cap” of all the 30 companies that make up the Sensex!

Second: Add all the “free-float market cap’s” of all the 30 companies!

Third: Make all this relative to the Sensex base. The value you get is the Sensex value!

The “third” step probably confused you. To understand it, you will need to understand “ratios and proportions” from 5th standard mathematics. Think of it this way:

Suppose, for a “free-float market cap” of Rs.100,000 Cr... the Sensex value is 4000…

Then, for a “free-float market cap” of Rs.150,000 Cr... the Sensex value will be..


1,00,000/4,000 = 1,50,000/?


then
? = (1,50,000 x 4,000)/ 1,00,000
i.e. 6,000


So, the Sensex value will be 6000 if the “free-float market cap” comes to Rs.150,000 Cr!

Please Note: Every time one of the 30 companies has a “stock split” or a "bonus" etc. appropriate changes are made in the “market cap” calculations.

Now, there is only one question left to be answered, which 30 companies, why those 30 companies, why no other companies?

The 30 companies that make up the Sensex are selected and reviewed from time to time by an “index committee”. This “index committee” is made up of academicians, mutual fund managers, finance journalists, independent governing board members and other participants in the financial markets.

The main criteria for selecting the 30 stocks is as follows:

Market capitalization: The company should have a market capitalization in the Top 100 market capitalization’s of the BSE. Also the market capitalization of each company should be more than 0.5% of the total market capitalization of the Index.

Trading frequency: The company to be included should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like share suspension etc.

Number of trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year.

Industry representation: The companies should be leaders in their industry group.

Listed history: The companies should have a listing history of at least one year on BSE.

Track record: In the opinion of the index committee, the company should have an acceptable track record.
Having understood all this, you now know how the Sensex is calculated.

What is Market Capitalization?

You probably think that you have never heard of the term “market capitalization” before. You have! When you are talking about “mid-cap”, “small-cap” and “large-cap” stocks, you are talking about market capitalization!

Market cap or market capitalization is simply the worth of a company in terms of it’s shares! To put it in a simple way, if you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the “market capitalization”!

To calculate the market cap of a particular company, simply multiply the “current share price” by the “number of shares issued by the company”! Just to give you an idea, ONGC, has a market cap of “Rs.170,705.21 Cr” (when this article was written)

Depending on the value of the market cap, the company will either be a “mid-cap” or “large-cap” or “small-cap” company! Now the question is, how do YOU calculate the market cap of a particular company? You don’t! Just go to a website like moneycontrol and look up the company whose market cap you are interested in finding out! The figure in front of “Mkt. Cap” will be the market cap value.

Having seen what market cap is and how to find out the market cap of a particular company, let us try to understand the concept of “free-float market cap”

How is BSE - Sensex Calculated

The Sensex has a very important function. The Sensex is supposed to be an indicator of the stocks in the BSE. It is supposed to show whether the stocks are generally going up, or generally going down.

To show this accurately, the Sensex is calculated taking into consideration stock prices of 30 different BSE listed companies. It is calculated using the “free-float market capitalization” method. This is a world wide accepted method as one of the best methods for calculating a stock market index.

Please note: The method used for calculating the Sensex and the 30 companies that are taken into consideration are changed from time to time. This is done to make the Sensex an accurate index and so that it represents the BSE stocks properly.

To really understand how the Sensex is calculated, you simply need to understand what the term “free-float market capitalization” means. (As we said earlier, the Sensex is calculated on basis of the “free-float market capitalization” method) But, before we understand what “free-float market capitalization” means, you first need to understand what “market capitalization” means.

What is BSE?

BSE IS BOMBAY STOCK EXCHANGE WHICH IS ASIA'S OLDEST BROKING
HOUSE.IT WAS ESTABLISHED IN 1875 IN MUMBAI.IT IS ALSO CALLED
AS DALAL STREET.IN BSE THERE ARE 6000 COMPANY
LISTED.CALCULATION OF MARKET CALLED SENSEX WHICH CALCULATED
BY FREE FLOAT METHOD UNDER TOP 30 COMPANY ACCORDING TO THERE
MARKET CAPITALIZATION.

What is technical analysis of shares and stocks?

The technical analysis is the study of stock prices irrespective of the fundamentals of the company.

Technical analysis (TA) is done on the basis of OHLC (open, high, low and closing price) and volume of the script on various time frames like 5 minutes, 30 minutes, daily, weekly, monthly etc.

The prices of the a particular script or share are depicted in chart form for a particular period of time and with the aid of various studies like candle sticks, bars, patterns, oscillators etc. expected move and direction of the share/script is figured out.

Technical analysis of share requires specific software designed to transform the history price data of a specific share into chart form like this.

How can I start trading and investing in stock market?

There are two ways of doing it.

First, open a Demat and Trading Account with your Bank.

1. A demat (dematerialized) account in your bank is required for deposit and withdrawal of shares which you will be buying and selling.
2. A Trading Account is required for buying and selling of shares in the market.
3. After opening of Demat and Trading Account with your bank, you can start trading in shares through your Bank.
4. Different Banks like SBI, HDFC etc. provide services for trading like trading through phone or trading online through the internet and you have to choose as per your choice.
5. If you are well versed with the Internet, you can trade online; otherwise you can just trade through the telephone. That is, telling your bank which share you would like to purchase (including quantity) and which share you would like to sell.

Another way of trading in share is to open a Demat and Trading Account with some Broker Firm or Company like Religare Securities and Indiabull etc.

These broker firms also provide all kind of facilities for trading and in my personal opinion, trading through broker firms is more suitable.

What is Nifty?

* well, in the context of Indian Share Market, Nifty is an Index of NSE i.e. National Stock Exchange.


* Shares of around 1200 companies are listed in NSE out of which 50 diversified stocks are listed in Nifty.


* It is also known as S&P CNX Nifty and it is owned/managed by India Index Services and Products Limited (IISL)


* The 50 stocks included in Nifty represents 21 sectors of the Indian Economy.