Stock Market For Beginners | Stock Market Full Explained 2020

Structure of Stock Market:   Firstly we will talk about the Stock Market Structures. As in, how financial markets are divided structura...

Structure of Stock Market: 

Firstly we will talk about the Stock Market Structures. As in, how financial markets are divided structurally. So see, in Financial Markets Or, for now, you can say 'in Stock Markets' there are 2 types of participants. The first one is generally called Big Player. And the second type of participant is called Small Player. So, there are a total of 2 types of players in markets. Now these Big Players are called Big Players because they have huge money. And these Small Players are called Small Players because their money is smaller, compared to Big Players. So, there will always be two types of players in stock markets. Two types of Participants. One, with huge money. And others with a comparatively lesser amount of money. Now, lets first talk about these big players. Who are these big players? So see, either these big players are Individual Participants or they can be some institutions. So, 2 types of big players are there.

Stock Market For Beginners | Stock Market Full Explained 2020

First, some individual people, who are very rich. Second, some institutions. Now, before going into depth, I want to clarify one more thing. If individuals or institutions have money, but they don't invest in stock markets or financial markets then, we will not call them Big Players. We will refer individuals or institutions as big players only if First - They have huge money. Second - They also invest in financial markets or stock markets. So, let's talk about who are these individuals (big players)? So see, you already know about some super-rich people, like Rakesh Jhunjhunwala who is a very famous stock market investor in India. Like these, many other individual stock market participants, they are big players in Markets. Like this, all the individuals, all the super-rich people who invest in stock markets, all of them are Big Players. Now, let's talk about Institutions. Which type of institutions can be Big Players? So, let me talk about some examples of these. You might know, the banks, who have huge money, they also invest in stock markets or financial markets. That's why banks are also Big Players in Markets. 

Similarly, if you know about Mutual Funds, then you must know many people invest in Mutual Funds. So, mutual funds also have huge money. And because they also invest in stock markets or financial markets That's why they are also big players in the stock market. Similarly, you can say, FIIs (Foreign Institutional Investors) They are also Big Players. They have huge money and they also invest in stock markets. Similarly, DIIs, as in Domestic Institutional Investors They are also Big Players. Similarly Government. You know, governments also invest in stock markets or financial markets. Now, they also have huge money and they invest too. Meaning, both our conditions for Big Players are satisfied. So, the government is also a Big Player. 

Similarly, if you think, you will find many such institutions who participate in the markets as Big Players. Now, if we talk about these small players, Who are these small players? Small players are also such people, individuals, or institutions, who are not big players. who have lesser money to invest in stock markets? If you invest in markets then most probably you are also a small player. If we invest in markets then we also small players in stock markets. So, till here we learned about who small players are, who big players are. But, this is not enough. If we truly want to understand the markets, If we want to understand the structure of stock markets or Financial Markets then we must know some more things about these small players and big players. I'll discuss those things now. 

So, when we think about Small Players and Big Players the first thing that comes to the mind is How many such people exist? As in, if the total number of people in stock markets is 100. So, out of 100, how many will be big players, and how many will be small players? So, let's talk about this. If there are a total of 100 people in the stock market Out of these 100, only 5 or less than 5 will be Big Players. Out of 100, 95, or more will be Small Players. So, you are noticing, big players are too few, generally 5% or less. And small players are huge in number, 95% or more. Now, while thinking about the concept of big players and small players, one more thing comes to mind. Out of all the money invested in stock markets, how much of it is of Big Players? And how much of it is of Small Players? So, generally speaking, in a normal market, 90% or more money is of Big Players. And 10% or lesser money is of Small Players. 

This ratio I am talking about, it can be different in different financial markets. But, generally, this ratio revolves around this where 90% of the money is of big players, and only 10% of money is of small players. If you look into this closely, then what you will understand is there are many small players in the market, but their total money in the market is very small. In markets, big players are very few, but their money in the market is very huge. If you think about it closely then what you will understand is If we talk in terms of Capital per Big Player, their capital share in markets is huge. And if we talk in terms of Capital per Small Player, their capital share in markets is very low. And because of this, when big players buy any share in stock markets, they buy in huge quantities. And when small players buy any stock in the stock market, they buy in fewer quantities. In Indian Stock Markets, the desi people, the Indian people they call big players - Operators. 

As in, they mean when big players buy-in stock markets, because of their buying, a stock goes up very quickly. And when big players sell in markets, then because of their selling, the stock falls very quickly. So, let's try to understand the logic behind it. Does this happen? If this happens, why this happens? So, as we discussed here, when big players buy-in markets they buy in huge quantities. And if you think about this fact closely At any given point, the thing (stocks) in the market is available only in limited quantities. And if, within that limited quantities, if some big player starts buying, then it will create a situation We call it - Rise in Demand. Or we also say, suddenly a condition of Excess Demand is created in markets. The supply of that thing remained almost the same, as before. But, because, suddenly the big player started buying in markets So, the demand for that thing will suddenly increase. 

Because of which, in markets, Excess Demand, as in, a situation of huge demand will be created. And when this happens in Markets then, by rules of economics or, by general understanding the price of that thing should increase. And this happens in Markets. When big players suddenly buy something Because their buying quantity is huge. That is why excess demand is created. And because of their sudden buying, the price of that thing temporarily goes up. And the same goes for selling as well. When big players will sell in markets then, suddenly, the supply of that thing will increase. And when that thing is available everywhere for buying but its demand will not rise immediately. Then, by rules of economics, The price of that thing will fall suddenly. 

And that is why when a big operator sells shares in markets then, due to an immediate rise in supply, the price of that thing falls suddenly. That is why, if we refer big players as Operators, then it is Not Wrong. Actually, by logic, it is correct. Because, when big players buy, then because of their buying, the market is operated to the upside. As in, because of them, the market goes up. And if they sell, the market goes down because of their selling. So, you can say, they are Operators in Stock Market. They, maybe not permanently, but temporarily they control market to upside or downside using their massive buying and massive selling. So, this is the basic structure of  Stock Markets. As in, how the market is exactly structured. 

How Stock Price is Decided: 

Now we will talk about when you see a stock's price, whether it's on your stock market platform, or on TV How exactly is it decided? For example, right now the price of Yes Bank is Rs. 39.95 So, what this Rs. 39.95 exactly means? So, in this article, we will talk about this in detail. So, let's try to understand this with an example. In our case, this boy's name is Arjun. He goes to the market to buy apples. And when he goes to the market to buy apples, there are always two parties in the market. The first party is called Buyer. In our case, its Arjun. And the other party is called the seller, the one who will sell apples to Arjun. 

So, when Arjun will go to the market to buy Apples, what will be his first step? His first step will be to find out the price at which the seller is selling apples. For this, he will ask the seller the price of the apples. In this case, the seller told him that he will sell apples at Rs.100. In this case, this 100 rupees is a proposed price. As in, the seller is proposing that he can buy the apple from him at Rs. 100. Now, Arjun has 2 choices. Either he buys the apple at Rs.100 or he does not buy the apple at Rs. 100. If he buys the apple at Rs.100, then we will now call this price - Accepted Price. As in, the proposal given by the seller, he accepted it. And when, in the market, a buyer accepts the proposal of a seller, then a Trade/an Exchange takes place. 

And the price at which the exchange takes place, in our case it is 100 rupees we will now call this price - A Traded Price. When you see the price of a stock in the stock market, it is nothing but a Traded Price. As in, the price at which the buyer bought that thing from a seller, that is called a Traded Price. If I change it to the Stock Market Language At what price a share is sold by a seller to a buyer? Or you can reverse it, at what price a buyer bought stock from a seller? That price is called Traded Price. And in the stock market, the price of a share you continuously watch, that is nothing but a Traded Price. As new exchange takes place in markets, the price at which the exchange takes place. That price becomes the Price of that Stock. 

So, you can say, in the stock market, the price of the stock is Last Traded Price. As in, at what latest price that shares was bought by a buyer from a seller, that becomes the price of that share. For example, you can see Yes Bank's Share Price, which is Rs. 39.95 What does this mean? This means, some buyers just recently bought Yes Bank share from a seller at Rs. 39.95. Like this, whatever share prices you can see, they are nothing but that stock's latest traded price. And as a short form, we call this Last Traded Price as LTP. So, if you see a stock's price somewhere, and if you call it LTP, it is not wrong. Now, lets come back to our example once more, to discuss some more cases. Here we assumed that Arjun accepted that Rs. 100 rupees proposal, and that is why it became LTP. 

But, if Arjun didn't agree to pay this Rs. 100 rupees, as in if the price didn't covert into an accepted price Then, the trade would not have happened at Rs.100. And if the trade didn't happen at Rs. 100, it would not become a Traded Price. And if it is not a Traded Price, the price will not switch to Rs. 100 Rupees. So, this simply means, in this case, if a stock price has to become Rs. 100 then the seller should be ready to sell at Rs. 100 and the buyer should also be ready to buy at Rs. 100. If either of these parties is not ready to trade at this price, then the stock's price will not become Rs. 100. Now, let's discuss one such example, just for the sake of understanding. Let's assume, Arjun comes to market again. Arjun is told by the seller that he will sell the apple as Rs. 100. Arjun says - "No, 100 is too much, please give it at Rs. 90." 

Now, in this case, the proposal earlier given by the seller, Arjun rejected it. Arjun placed his proposal price in the market as a buyer. Arjun said - "Will you sell apples to me at Rs. 90, or not." If the seller, agrees to trade at the price of Rs. 90 which is proposed by Arjun as a Buyer then Rs. 90 will become an accepted price. You can see here, the buyer is giving the proposal, and the seller is accepting the proposal. The buyer is giving a Bargaining Proposal, and Seller is Accepting. If the seller accepts, then the price of apple in the market will become Rs. 90. As in, Apple's LTP will become Rs. 90 rupees. Meaning, if Apple is a share, you will see its price as Rs. 90 in markets. So, there are always two parties in the markets. One gives the proposal, and the other accepts it. In markets, if both parties give proposal and acceptance at the same price, then that price becomes LTP. And if both parties do not agree at a single price, then it does not become an LTP. 

So, in short, for it to become LTP, the buyer must buy at that price and the seller must also sell at that price. Which party is the Proposed Party, and which party will be Acceptance Party that depends on which party is giving proposal price, and which party is accepting proposal price. But, in the end, the thing that matters is the Traded Price which is a stock's actual price where both parties agree to trade. So, next time, when you see a stock's price on TV or a charting platform then you will know, how that stock price is formed. There, some buyers bought that stock from a seller. And when that stock's price is changed, how it is formed? It is a new trade, as in, a new buyer bought that stock from a new seller at that price. So, as new trades take place in markets, then the price keeps on changing according to that. 

Many people think that every stock's price changes every second. A stock's price is changed every second, it is not compulsory. After how many seconds, minutes, or hours a stock price is changed, it depends on when the next trade happens. For some stocks, many people want to buy and sell those stocks. There, the trades will happen faster. There, the stock price may be changed 5-6 times in a single second. Because, there, 5-6 trades happened within a second. But, the stocks which are not active, where very few people want to buy or sell them It is possible that there a trade takes place after an hour, or two hours, or maybe, after 2 or 3 days. There are several such small stocks, where no trade takes place for days. Meaning, price doesn't change for many days. So, even that is possible. 

Stock Market Depth for Buying and Selling: 

At last, we will try to understand how market depth is used for buying and selling. Let's understand this with an example. In our example, this boy's name is Arjun. He goes to the market to buy Apples. Now, as a buyer, whenever we buy something, we want to buy it at a bargained price, a low price. Arjun has this same objective that when he goes to the market to buy apples, we want to buy apples at the cheapest price. To fulfill this objective, firstly he has to perform an activity in the market where he has to ask every seller in the market the price of the apples. And then, he will know who is selling the apples at the lowest price. And then, he can buy the apples from that seller. And this process is called Price Enquiry. 

Now, let's discuss this in more depth. Let's assume, when Arjun did Price Enquiry one seller was selling apples at Rs. 100. One seller was selling apples at Rs. 90. One seller was selling apples at Rs. 80. One seller was selling apples at Rs. 70. There were only 4 apple sellers in the market. And all four sellers were selling the same apples. The same quality, everything is the same, but the only price was different. Now, considering all this, Arjun will buy from this Rs.70 Seller. And with this, Arjun's objective of buying the apple at the lowest price is fulfilled. And that was fulfilled because Arjun did Price Enquiry. This happens in Stock Market too where, at any time, each stock is being sold by several sellers are different prices, and you have to figure out who is the Most Effective Seller, or Most Competitive Seller among them all. 

I hope everything is now clear. So hit the like button and if you want to read more articles on Stock Market then comment down below and subscribe to my blog.  I will surely write an article in the next time. Thank you so much and Happy Trading.