Introduction to Stocks
Welcome to your first step into the world of stock trading. This lesson builds a strong foundation, helping you understand how stock markets work, who participates, and why stocks move.
1.1 What Is the Stock Market?
The stock market is a financial marketplace where shares of publicly listed companies are bought and sold. Companies use the stock market to raise capital, while investors and traders participate to grow wealth or generate income.
Key Participants in the Stock Market
| Participant | Role |
|---|---|
| Companies | Issue shares to raise capital |
| Investors & Traders | Buy and sell shares to earn returns |
| Market Makers | Provide liquidity by continuously buying and selling shares |
While stocks are the primary focus of this course, other instruments such as bonds, ETFs, commodities, and index funds are also traded in financial markets.
Why Trade the Stock Market?
A stock (or share) represents partial ownership in a company. When you own a stock, you become a shareholder, which may provide certain benefits.
Potential Benefits of Stock Trading
Capital appreciation – profit from rising stock prices
Dividends – regular income from profitable companies
Two-way opportunities – profit from rising or falling markets
Long-term wealth creation – benefit from company growth
Stocks do not rise indefinitely. Markets move in cycles, creating both opportunities and risks.
Who Trades the Stock Market?
The stock market is traded by a wide range of participants:
| Trader Type | Objective |
|---|---|
| Institutional Investors | Long-term portfolio growth |
| Retail Investors | Personal wealth building |
| Dividend Investors | Passive income |
| Day Traders | Short-term price movements |
| Portfolio Managers | Manage client funds professionally |
1.2 Stock Market Exchanges
Stock exchanges are regulated marketplaces where stocks are listed and traded. They ensure fair pricing, transparency, and investor protection.
World’s Largest Stock Exchanges (by Market Value)
| Exchange | Country | Estimated Value |
|---|---|---|
| NYSE | USA | USD 25.0 Trillion |
| NASDAQ | USA | USD 21.7 Trillion |
| Euronext | Europe | USD 7.2 Trillion |
| Shanghai SE | China | USD 6.7 Trillion |
| Japan Exchange Group | Japan | USD 5.9 Trillion |
| Hong Kong Exchange | Hong Kong | USD 4.2 Trillion |
| NSE | India | USD 3.5 Trillion |
| LSE | UK | USD 3.4 Trillion |
Stock Market Trading Hours
Stock markets operate Monday to Friday, excluding public holidays.
Global Trading Hours Overview
| Region | Trading Hours | Time Zone |
|---|---|---|
| US (NYSE, NASDAQ) | 9:30 AM – 4:00 PM | EDT |
| Europe | 9:00 AM – 5:30 PM | CEST |
| Hong Kong | 9:30 AM – 12:00 PM / 1:00 PM – 4:00 PM | HKT |
| Japan | 9:00 AM – 11:30 AM / 12:30 PM – 3:00 PM | JST |
After-Hours Trading
With Electronic Communication Networks (ECNs), stocks can be traded outside normal hours.
Pros & Cons of After-Hours Trading
| Advantage | Risk |
|---|---|
| React to breaking news | Low liquidity |
| Early price discovery | Wider spreads |
| Extended opportunities | Higher volatility |
1.3 Market Capitalisation
Market capitalisation (Market Cap) measures a company’s size.
Market Cap Formula
Market Cap = Share Price × Shares Outstanding
Company Size Classification
| Category | Market Cap Range |
|---|---|
| Large-cap | USD 10B+ |
| Mid-cap | USD 2B – 10B |
| Small-cap | USD 300M – 2B |
1.4 Bull vs Bear Markets
| Market Type | Description |
|---|---|
| Bull Market | Prices rising 20% or more |
| Bear Market | Prices falling 20% or more |
The S&P 500 Index is commonly used as a benchmark for overall market direction.
1.5 How Stock Prices Move
Stock prices move based on supply and demand.
Price Movement Drivers
More sellers → price falls- More buyers → price rises
News, earnings, economic data
Market sentiment & expectations
1.6 Dividends
Dividends are profit distributions paid to shareholders.
Dividend Basics
| Feature | Details |
|---|---|
| Payment Frequency | Monthly, quarterly, annually |
| Eligibility | Must own shares before ex-date |
| Form | Cash or additional shares |
Dividend vs Growth Stocks
| Investor Type | Preference |
|---|---|
| Income-focused | Dividend-paying stocks |
| Growth-focused | Reinvesting companies |
Dividends alone do not define a good stock — alignment with your goals matters most.
Module Recap
The stock market enables buying and selling company shares Stocks offer profit opportunities through price movement and dividends Markets operate during fixed hours across global exchanges Market capitalisation helps assess company size and risk Bull and bear markets guide strategy selection Stock prices move due to supply, demand, and information flow