Tuesday, September 23, 2014

Stock Market / Equity Market Explained including Futures and Options

Equity Market- An Introduction

A stock or any other security is representing an ownership interest. A equity market is a public
entity (a loose network of economic transactions, not a physical facility or discrete entity) for
the trading of company stock (shares) at an agreed price; these are securities listed on a stock
exchange as well as those only traded privately.

Major Exchanges were trading takes place are NSE (National Stock Exchange), BSE (Bombay
Stock Exchange), MCX-SX.

Cash Segment
The cash equity market is the same thing as the stock market. It's where companies raise cash
by selling shares of ownership and where investors buy and sell those shares of ownership.

Derivatives Segment
A security whose price is dependent upon or derived from one or more underlying assets. The
derivative itself is merely a contract between two or more parties. Its value is determined by
fluctuations in the underlying asset. The most common underlying assets include stocks,
bonds, commodities, currencies, interest rates and market indexes. Most derivatives are

characterized by high leverage.

Future :- A contractual agreement, generally made on the trading floor of a futures
exchange, to buy or sell a particular commodity or financial instrument at a predetermined
price in the future. Futures contracts detail the quality and quantity of the
underlying asset; they are standardized to facilitate trading on a futures exchange.
Some futures contracts may call for physical delivery of the asset, while others are
settled in cash.

 Options: - A financial derivative that represents a contract sold by one party (option
writer) to another party (option holder). The contract offers the buyer the right, but not
the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed upon
price (the strike price) during a certain period of time or on a specific date
(exercise date).
Call options give the option to buy at certain price, so the buyer would want the stock
to go up.
Put options give the option to sell at a certain price, so the buyer would want the stock
to go down.


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