Beginner —
Foundation Stage

Overview

The stock market is a marketplace where buyers and sellers trade shares (ownership stakes) of publicly listed companies. It enables companies to raise capital from the public and gives investors an opportunity to share in a company's growth and profits.

Why Stock Markets Exist

• Companies need capital to grow — they sell shares to raise funds
• Investors get a chance to own a piece of a business and earn returns
• Provides liquidity — you can buy or sell your ownership at any time
• Creates a transparent price discovery mechanism

Key Concepts

The Trading Process

When you buy a stock, you're purchasing ownership from another investor (not the company directly in the secondary market). A broker facilitates this transaction on a stock exchange.

• You place a buy order through your broker's platform
• The order goes to the stock exchange's order book
• When a seller's price matches your price, the trade executes
• The exchange confirms the trade and updates your demat account

Important Terms

Who Participates in the Market?

Traders vs Investors

• Investors — hold for months or years; focus on company value and growth
• Traders — hold for minutes to weeks; focus on price movement
• Both can profit, but require different skill sets and mindsets

Two Distinct Approaches

Which is Right for You?

• Investing requires patience but lower time commitment day-to-day
• Trading requires daily attention, discipline, and fast decision-making
• Many successful market participants do both — invest a core, trade the rest

Instruments You Can Trade or Invest In

The Risk-Return Relationship

Higher potential return always comes with higher risk. This is a fundamental law of finance. Understanding and managing risk is more important than chasing returns.

• Volatility — how much a price moves up or down; higher volatility = higher risk
• Inflation — erodes purchasing power; your returns must beat inflation
• Compounding — earning returns on your returns; the magic of long-term investing
• Diversification — spreading investments to reduce risk

What You Need

• Demat Account — holds your shares in electronic form (like a bank account for stocks)
• Trading Account — used to place buy/sell orders on the exchange
• KYC — Know Your Customer: PAN, Aadhaar, bank details required
• Bank Account — linked for fund transfers

Cost & Charges

Core Order Types

When to Use Each

• Use Market Order when speed matters and liquidity is high
• Use Limit Order when you want price control (most of the time)
• Always use Stop Loss — it protects your capital
• Use GTT for set-and-forget entries near support zones