The Study of Basics of Share Market with Special Reference to Sharekhan.

Company Profile

Sharekhan is a firm which is working under SSKI (Shantilal, Shevantilal, Kantilal, Ishwarlal) Ltd. SSKI was founded in 1922. SSKI is one of India’s oldest brokerage houses having eight decades of experience into:

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• Institutional Broking
• Investment Banking Retail Broking

It is one of the founding members of the Stock Exchange, Mumbai and Pioneer Institutional Broker. SSKI Entered into Retail Broking in 1985. Share khan is the Retail Broking Arm of the BIG 82 Years old organization i. e. of SSKI and “Sharekhan” is the Brand Name given to its Retail Business. SSKI carries out its Retail Broking Activities under Sharekhan Brand Name. Sharekhan is One of India’s Leading Broking Houses. They Provides you a Complete Life-Cycle of Investment Solutions in Equities, Derivatives, Commodities & Depository Services.

But now a days it mostly concentrates on online trading account through which a customer can buy and sell shares in an instant from any part of the globe through website. It does not take into account any type of physical restriction of going to the broker for carrying out a transaction or any type of settlement of payment. It facilitates the customer a speedy and hassle free transaction.

Then Sharekhan provides a Trading A/C through this trading account, a Sharekhan customer can directly transfer his funds from his savings account i. e. from bank account to Sharekhan to his trading account without any paper work. He can buy and sell shares from the website and also view the market prices of the shares he trades on the terminal. Sharekhan. com allows trading at present only on NSE. BSE trading will be shortly available. To open an account a customer requires filling up a form consisting of 12 agreements, a passport size photograph, a residential proof, a photo ID proof and a cheque drawn of respective amount in favour of S.S. Kantilal Ishwarlal securities Pvt. Ltd. & from 22 March, 2007 cheque is drawn in favour of Sharekhan LTD itself. After opening an account with Sharekhan, a customer will be given User ID, Membership password and trading password, which will enable him to access his account and trade. Bank Connection:- Sharekhan has affiliation with 11 banks, which allows its customers to enjoy the facility of instant credit and transfer of funds from his savings bank account to his Sharekhan trading account.

The basic functions of SEBI is to protect the interests of investors in securities, to regulate the securities market & to promote its development.

Functions of SEBI

• To register & regulate the working of capital market intermediaries.
• To regulate the working of mutual funds. To promote self-regulatory organizations.
• To prohibit fraudulent & unfair trade practices in securities market.
• To promote investor’s education of intermediaries.
• To prohibit insider trading in securities.
• To regulate acquisition of shares & takeovers of companies.

Primary & Secondary Market

Primary Market In primary markets securities are bought by way of public issue directly from the company. In simple words “A market is primary if the proceeds of sales go to the issuer of the securities sold. ” This is part of the financial market where enterprises issue their new shares and bonds.

It is characterized by being the only moment when the enterprise receives money in exchange for selling its financial assets. b)Secondary Market The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. To explain further, it is trading in previously issued financial instruments. Examples are the New York Stock Exchange (NYSE), Bombay Stock Exchange (BSE), National Stock Exchange NSE, bond markets, over-the-counter markets, residential mortgage loans, governmental guaranteed loans etc.

BSE is the oldest stock exchange in Asia and has the greatest number of listed companies in the world. It is located at Dalal Street, Mumbai, India. BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certifications. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE has two of world's best exchanges, Deutsche Bores and Singapore Exchange, as its strategic partners.

Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups.

• Bull Market: There are two classic market types used to characterize the general direction of the market. Bull markets are when the market is generally rising, typically the result of a strong economy. A bull market is typified by generally rising stock prices, high economic growth, and strong investor confidence in the economy.

Simply put, bull markets are movements in the stock market in which prices are rising and the consensus is that prices will continue moving upward. During this time, economic production is high, jobs are plentiful and inflation is low. A key to successful investing during a bull market is to take advantage of the rising prices. Bear Market :- The opposite of a bull market is a bear market when prices are falling in a financial market for a prolonged period of time. A bear market tends to be accompanied by widespread pessimism. A bear market is slang for when stock prices have decreased for an extended period of time.

If an investor is "bearish" they are referred to as a bear because they believe a particular company, industry, sector, or market in general is going to go down. Bear markets are the opposite - stock prices are falling, and the view is that they will continue falling. The economy will slow down, coupled with a rise in unemployment and inflation.

Buy

• We can buy the shares on market price.
• We can also negotiate and buy the shares on lower price than the market price.

Sell

• We can sell the shares on market price.
• We can also negotiate and sell the shares on higher rate than the market price.

Short sell

• Short selling starts with borrowing a stock from your broker
• You sell the borrowed stock hoping to buy it back at a lower price and return (short cover) it to your broker for a profit
• All rules for buying still apply

Short cover

• Must have already short sold the stock
• May set a maximum price limit
• All other rules for selling apply

Derivative Market

Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying assets, index) in a contractual manner.

The underlying assets can be Equity, Forex, commodity, Bullion or any other assets. The emergence of the market for derivative products, most notably forwards, Futures and Option, can be traced back to the willingness of risk adverse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivatives products, it is possible to partially or fully transfer price risks by locking in asset price.

For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of derivative. The price of this derivative is driven by the spot price of wheat, which is the “underlying”.

Types of Derivatives

The most commonly used derivatives contracts are forwards, futures and options.

• Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specified date in the future at today’s pre-agreed price. A Forward contract is an agreement to buy or sell an asset on a specified date for a specified price.

The salient features of forward contracts are:

• They are bilateral contracts and hence exposed to counter party risk.
• Each contract is custom designed, and hence is unique in terms of contract size, expiration date and the asset type and quality.
• The contract price is generally not available in public domain.
• On the expiration date, the contract has been settled by delivery of the assets.
• If the party wishers to reverse the contract, he has to compulsory go to the same counterparty, which often results in high prices being charged.

Futures: A future contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Future contracts are special type’s forward contracts in the sense that the former are standardized exchange traded contracts. The futures markets were designed to solve the problems that exist in forward markets. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. But unlike forward contracts, the futures contracts are standardized and exchange traded.

To facilitate liquidity in the futures contracts the exchange specified certain standard features of the contract. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered and a standard timing of such settlement.

• Options: Option is a legal contract in which the writer of the option grants to the buyer, the right to purchase from or sell to the writer a designated instrument or a scrip at a specified price within a specified period of time.

There are basically two types of options

• Call Option: An option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract, regardless of the prevailing market price of the underlying asset. One buys a call option if one believes the price for the underlying asset will rise by the end of the contract. If the price does rise, the holder may buy and resell the underlying asset for a profit.

If the price does not rise, the option expires and the holder's loss is limited to the price of buying the contract. Call options may be used on their own or in conjunction with put options to create an option spread in order to hedge risk. Buying a call option gives you, as owner, the right to buy a fixed quantity of the underlying product at a specified price, called the strike price, within a specified time period. For example, you might purchase a call option on 100 shares of a stock if you expect the stock price to increase but prefer not to tie up your investment principal by investing in the stock.

If the price of the stock does go up, the call option will increase in value. You might choose to sell your option at a profit or exercise the option and buy the shares at the strike price. But if the stock price at expiration is less than the strike price, the option will be worthless. The amount you lose, in that case, is the premium you paid to buy the option plus any brokerage fees. In contrast, you can sell a call option, which is known as writing a call. That gives the buyer the right to buy the underlying investment from you at the strike price before the option expires.

If you write a call, you are obliged to sell if the option is exercised and you are assigned to meet the call.

• Put Option: A put option is a financial contract between two parties, the writer (seller) and the buyer of the option. The buyer acquires a short position by purchasing the right to sell the underlying instrument to the seller of the option for a specified price (the strike price) during a specified period of time. If the option buyer exercises their right, the seller is obligated to buy the underlying instrument from them at the agreed upon strike price, regardless of the current market price.

In exchange for having this option, the buyer pays the seller or option writer a fee (the option premium). By providing a guaranteed buyer and price for an underlying instrument (for a specified p of time), put options offer insurance against excessive loss. Similarly, the seller of put options profits by selling options that are not exercised. Such is the case when the ongoing market value of the underlying instrument makes the option unnecessary; i. e. the market value of the instrument remains above the strike price during the option contract period.

Purchasers of put options may also profit from the ability to sell the underlying instrument at an inflated price (relative to the current market value) and repurchase their position at the much reduced current market price.

Commodity Market

Commodity trading is an interesting option for those who wish to diversify from the traditional options like shares, bonds and portfolios. The Government has made almost all commodities entitled for futures trading. Three multi commodity exchanges have been set up in the country to facilitate this for the retail investors.

The three national exchanges in India are:

• Multi Commodity Exchange (MCX)
• National Commodity and Derivatives Exchange (NCDEX)
• National Multi-Commodity Exchange (NMCE)

Commodity trading in India is still at its early days and thus requires an aggressive growth plan with innovative ideas. Liberal policies in commodity trading will definitely boost the commodity trading. The commodities and future market in the country is regulated by Forward Markets commission (FMC). Offerings of the Sharekhan:- Sharekhan offers both offline and online trading account.

But now a days it mostly concentrates on online trading account through which a customer can buy and sell shares in an instant from any part of the globe through website. It does not take into account any type of physical restriction of going to the broker for carrying out a transaction or any type of settlement of payment. It facilitates the customer a speedy and hassle free transaction.

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