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Theory And Instruments Of Stock Markets
The combination of buyers and sellers of stock or share, which represents the ownership of the business, is known as the stock market or share market. Four types of stocks are traded in the market viz. growth stocks, yield stocks, new issues, and defensive stocks. Before going into stocks, let us understand some of the theories or ideologies that are applied while trading in the share market.
Info on stocks – An insight into fair value
The theory was popularized by J Peter Steidlmayer in 1980, in which he explained why the market moves the way it does. Based on the past information on the stock and price available, you can interpret whether the current price of the share makes sense. The theory is not only applicable to shares but also other commodities, consumer goods, houses, or in our case, securities.
The Auction Market Theory takes accounts following three elements price, time, and volume, which will gradually gravitate towards the fair value of the particular stock. A trader who has experience builds their own natural understanding of auction market without realizing it.
This theory ...
... basically helps a person to understand where the stock is trading and what the future potential of the stock is. But if the stock is trading at fair value, then it trades at that price until the market gets any new information. But if the stock is not trading at fair value, then its likely in a time frame of price discovery.
Bank Nifty Futures
Nifty is the equity index in India, which is composed of the 50 stocks and is managed by the National Stock Exchange (NSE) indices ltd. Bank nifty is a sectoral index that focuses on both private and PSU bank stocks. The index comprises the twelve large capitalized Indian banking stocks. It provides the benchmark to the investors by capturing the capital market performance of the Indian Bank stocks.
The Bank Nifty Futures is calculated using the free-float
methodology, where the stocks are weighted based on the free-float market capitalization. In the Bank Nifty, the private banks have an exceedingly large weightage in Bank Nifty compared to the PSU banks.
Futures are basically a financial contract that obligates the parties to transact an asset at a predetermined future date and price. Based on the contract, the buyer must purchase, or the seller must sell the underlying asset at a set price, regardless of the current market price with an expiration date.
The underlying assets may include physical commodities or other financial instruments. They are usually used for hedging or trade speculation. Investors usually use future contracts to speculate the direction of the price of the underlying asset. But investing in a futures contract might cause a company that has hedged to miss out on a favorable price.
Aspects of share market
The Order Flow Trading Strategies is a method that attempts to anticipate the price movement based on the current order that is visible on both the buy and sell-side. Order flow is the rawest form of data that one can access today trade.
It is a basic combination of actual contracts bought and sold at a certain price and the time and interest of buyers or sellers. Order flow can be employed in many facets of financial markets. Here are some of the phenomenon that drives the order flow market, namely stop hunting, market microstructure, tap reading, and technical analysis.
Share market is a vast field, and there are many aspects of the share market, but in plain terms, it is a platform where you can buy and sell.
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