SECURITY TRADING PRACTICES – COMPLETE NOTES (WITH EXTRA TOPICS)
MODULE 1 – MAIN TOPICS
Financial Market – Meaning & Definition:
A financial market is a place where assets like shares, bonds and derivatives are traded. It
mobilises savings, transfers funds to businesses and supports economic growth. It provides liquidity
and enables price discovery.
Classification of Financial Market:
Financial markets include the money market, capital market, primary and secondary markets,
derivatives market, forex market and credit market. Each market deals with different instruments
and maturities.
Difference Between Primary and Secondary Market:
The primary market issues new securities and raises fresh capital, while the secondary market
trades existing securities and provides liquidity. Prices are fixed in the primary market but
determined by demand and supply in the secondary market.
IPO and FPO:
IPO is the first public issue of shares by a company. FPO is the issue of additional shares after the
IPO to raise more funds.
Instruments of Secondary Market:
They include equity shares, preference shares, debentures, bonds, derivatives and ETFs.
Difference Between Shares and Bonds:
Shares provide ownership and dividends, while bonds represent a loan and offer fixed interest.
Shares are riskier than bonds.
BSE, NSE, NSDL, CDSL:
BSE and NSE are India's major stock exchanges. NSDL and CDSL are depositories that hold
securities electronically and maintain demat accounts.
SEBI Functions:
SEBI regulates stock exchanges, controls brokers, prevents insider trading and protects investors.
It also promotes transparency and develops market infrastructure.
Types of Financial Derivatives:
Derivatives include futures, options, forwards and swaps used for hedging, speculation and
arbitrage.
MODULE 1 – EXTRA TOPICS
Functions of Financial Market:
The financial market mobilises savings, provides liquidity, ensures price discovery, facilitates risk
sharing and channels funds toward productive investments.
Money Market Instruments:
Major money market instruments include Treasury Bills, Commercial Paper, Certificates of Deposit,
Call Money and Repo Agreements. These instruments support short-term funding and liquidity.
Capital Market Instruments:
Important instruments include equity shares, preference shares, debentures, bonds, derivatives
and mutual fund units. They are used for raising long-term funds.
Stock Market Indices – Sensex and Nifty:
Sensex represents 30 major companies on BSE, while Nifty includes 50 companies on NSE. They
act as indicators of market performance and economic conditions.
MODULE 2
Fundamental Analysis:
Fundamental analysis studies the intrinsic value of a company using financial statements,
management quality and industry conditions. It helps long-term investment.
P/E Ratio and P/B Ratio:
The P/E ratio shows how much investors pay for earnings, while P/B ratio compares market price
with book value. Both help in valuation.
Difference Between ROCE and ROE:
ROCE measures returns using debt and equity capital; ROE measures returns only on
shareholders' equity.
Technical Analysis:
Technical analysis studies past price trends and uses indicators like RSI, MACD and moving
averages to predict future movements.
Difference Between Technical and Fundamental Analysis:
Fundamental analysis determines value; technical analysis determines timing. FA is long-term, TA
is short-term.
MODULE 3
Theories of Portfolio Creation:
Portfolio theories include Modern Portfolio Theory, CAPM and the efficient frontier, all focusing on
balancing risk and return.
Different Types of Brokers:
Types include full-service, discount, online, custodian brokers and sub-brokers.
Process of Opening Demat Account:
Choose a broker, fill the application, complete KYC, verify identity and receive login details.
Capital Gain Tax:
Short-term equity gains are taxed at 15%. Long-term gains over ■1 lakh are taxed at 10%.
MODULE 4
Different Sectors in Secondary Market:
Major sectors include banking, IT, pharma, FMCG, automobiles, metals, energy and real estate.
Major Types of Portfolio Allocation:
Portfolios can be aggressive, moderate, conservative, sector-based or diversified.
Trader Psychology:
Trader psychology focuses on controlling emotions, following discipline and avoiding impulsive
decisions.
Zerodha and Upstox:
Both are discount brokers offering low-cost trading, user-friendly platforms and fast account
opening.