How The Stock Market Actually Works?

Q1: What is the stock market and why do companies list their shares on it?

A1: The stock market is a place where people buy and sell shares of companies. Companies list their shares to raise money from the public instead of taking only loans. In return, investors get a small ownership in the business and can benefit if the company grows and its share price goes up.

Q2: What is the difference between a stock and a share?

A2: In simple words, both “stock” and “share” mean ownership in a company. A share is one single unit of ownership, and “stock” usually refers to your overall holding. For normal investors, the difference is not important; you can treat them as the same in day‑to‑day use.

Q3: What is the primary market and how is it different from the secondary market?

A3: The primary market is where a company sells its shares to the public for the first time, like in an IPO. Money goes from investors to the company. The secondary market is the regular stock exchange, where investors buy and sell these shares among themselves after listing.

Q4: What is an IPO and why do investors apply for it?

A4: An IPO (Initial Public Offer) is when a private company offers its shares to the public and gets listed on an exchange. Investors apply because they hope to get shares at a fixed price and benefit from listing gains and future growth. It is often the first chance to invest in that company.

Q5: What is SEBI and how does it protect investors?

A5: SEBI (Securities and Exchange Board of India) is the main regulator of the securities market. It makes rules for exchanges, brokers, mutual funds, and listed companies. SEBI works to ensure fair trading, proper disclosure of information, and takes action against fraud and manipulation to protect investors.

Q6: What are NSE and BSE and why are they important?

A6: NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) are the two main stock exchanges in India. Almost all major listed companies trade on these exchanges. Indexes like Nifty 50 and Sensex are built using their listed stocks and show how the Indian market is performing.

Q7: What is a Demat account and why is it compulsory?

A7: A Demat account is like a digital locker where your shares and other securities are stored in electronic form. It replaced old paper share certificates. Today, to buy and sell listed shares in India, you must have a Demat account because settlement happens only in electronic form.

Q8: What is a trading account and how is it different from a Demat account?

A8: A trading account is opened with a broker and is used to place buy and sell orders on the stock exchange. A Demat account holds your securities after the trade is settled. You can think of trading as the “transaction door” and Demat as the “storage locker” for your investments.

Q9: What is KYC and which documents are needed to invest?

A9: KYC (Know Your Customer) is a process to verify who you are and where you live before you can invest. Usually you need PAN, an address proof like Aadhaar or passport, a photo, and bank details. Once KYC is done, you can open Demat and trading accounts with brokers.

Q10: What is a stock market index like Nifty 50 or Sensex?

A10: A stock index is a group of selected stocks combined into one number. Nifty 50 tracks 50 big companies on NSE and Sensex tracks 30 big companies on BSE. When the index goes up or down, it shows whether the overall market is generally rising or falling.

Q11: What is market capitalisation and how are large‑cap, mid‑cap, and small‑cap stocks defined?

A11: Market capitalisation is the total value of a company in the market, calculated as share price multiplied by number of shares. Based on this size, companies are grouped as large‑cap (big), mid‑cap (medium), and small‑cap (small). Large‑caps are usually more stable; small‑caps can give higher returns but carry higher risk.

Q12: How is equity investing different from keeping money in a bank FD?

A12: In a bank FD, you get fixed interest and your capital is generally safe, but returns are limited. In equity investing, your money is invested in shares whose prices move up and down. Over long periods, good equities can beat FD returns, but they also expose you to more short‑term ups and downs.

Q13: What is the basic difference between investing and trading?

A13: Investing means buying good assets and holding them for years to build wealth slowly. Trading means buying and selling more frequently to profit from short‑term price movements. Investors focus on long‑term company performance, while traders focus on charts, timing, and short‑term moves.

Q14: What is a dividend and how do shareholders receive it?

A14: A dividend is a part of a company’s profit given to shareholders. It is usually declared as an amount per share. If you hold shares on the record date, the company or its registrar credits the dividend directly to your registered bank account.

Q15: What is face value and how is it different from market price?

A15: Face value is the original nominal value of a share decided by the company, like ₹1, ₹2 or ₹10. Market price is the live trading price on the stock exchange. Market price can be much higher or lower than face value, depending on demand, supply, and company performance.

Q16: What is book value and how is it useful?

A16: Book value is the net worth of a company (assets minus liabilities) divided by the total number of shares. It tells you what each share is “worth” on the company’s books. Comparing share price with book value can give an idea whether a stock looks cheap or expensive on asset basis.

Q17: What is the 52‑week high and low of a stock and why do traders watch it?

A17: The 52‑week high is the highest price a stock has traded at in the past one year, and the 52‑week low is the lowest. Traders watch these levels because new highs can signal strong momentum, and prices near lows can signal weakness or possible value areas, depending on the situation.

Q18: What is liquidity in a stock and why is it important?

A18: Liquidity means how easily you can buy or sell a stock without heavily affecting its price. Highly liquid stocks have many buyers and sellers and high trading volume. Good liquidity makes it easier to enter or exit positions quickly and with lower hidden costs.

Q19: What is meant by volume in trading data?

A19: Volume is the total number of shares traded during a certain time, like in a day or a 5‑minute period. High volume means many shares are changing hands; low volume means fewer trades. Strong price moves with high volume are usually seen as more reliable than moves on very low volume.

Q20: What is the difference between equity shares and preference shares?

A20: Equity shares give you basic ownership in a company with voting rights and a share in profits after all obligations. Preference shares usually receive a fixed dividend first and have priority over equity in case of liquidation, but often have limited or no voting rights. They behave more like a mix of debt and equity.

Q21: What are debt instruments like bonds and debentures?

A21: Debt instruments are like loans made by investors to companies or governments. In return, the issuer promises to pay regular interest and return the principal at maturity. Bonds and debentures usually give more stable but lower returns than equities and are often used for capital protection and income.

Q22: What is a mutual fund and how is it different from buying individual stocks?

A22: A mutual fund collects money from many investors and invests it in a basket of stocks, bonds, or other assets. A professional fund manager decides where to invest. When you buy individual stocks, you choose and manage each company yourself. Mutual funds give instant diversification and are simpler for many beginners.

Q23: What is SIP and how does it work?

A23: SIP (Systematic Investment Plan) is a way to invest a fixed amount regularly, usually monthly, into a mutual fund. Each instalment buys units at that day’s price. Over time this averages out your cost and builds a habit of disciplined, long‑term investing without worrying too much about daily market timing.

Q24: What is meant by risk and return in stock market investing?

A24: Risk means the chance that your investment value will go down or behave differently from what you expected. Return is the money you make from an investment, including price increase and any income like dividends. Usually, higher possible returns come with higher risk, and safer options give lower returns.

Q25: What are the main risks for new equity investors?

A25: New investors can lose money if markets crash, if they pick weak companies, or if they invest in illiquid shares they cannot exit easily. Emotional decisions like panic selling or blindly following tips also create risk. Learning basics, diversifying, and investing only what you can keep for long term reduces these risks.

Q26: What is a trading session and what are normal market timings in India?

A26: A trading session is the time when the exchange is open for buying and selling. For Indian equity markets, normal hours are usually from 9:15 a.m. to 3:30 p.m., Monday to Friday (excluding holidays). Orders placed outside this time generally wait in the system and get processed when the market opens.

Q27: What is the settlement cycle and what does T+1 mean?

A27: The settlement cycle is how long it takes to transfer shares and money after a trade. T+1 means if you trade on day T, then on the next working day (T+1) the buyer gets the shares in Demat and the seller gets the money. It makes the system faster and safer.

Q28: What is a contract note?

A28: A contract note is a detailed bill your broker sends after trades. It lists which shares you bought or sold, at what price, quantity, date, and all charges like brokerage and taxes. It is an important legal document and is used later to check trades and calculate profit or loss for tax.

Q29: What is Securities Transaction Tax (STT)?

A29: STT is a small tax charged by the government on the value of certain share and derivative trades done on recognised exchanges. It is added automatically in your contract note. You cannot avoid it if the trade is covered, so it is part of your total trading cost.

Q30: What basic charges and taxes should a new investor know?

A30: Besides STT, you pay brokerage to your broker, exchange transaction charges, SEBI fees, GST on brokerage and charges, and stamp duty on turnover. On selling, you may also have to pay capital gains tax on profits, and dividends are taxed as part of your income. Knowing these helps you understand real net returns.

Q31: What is a portfolio and why should investors track it?

A31: A portfolio is the collection of all your investments like stocks, mutual funds, bonds, and other assets. Tracking it regularly shows you how your overall money is growing, how much risk you are taking, and whether you are on track for your goals. It helps you make timely changes if needed.

Q32: What does it mean to diversify a portfolio across sectors?

A32: Diversifying across sectors means not putting all your money in just one type of business, like only banks or only IT companies. Instead, you spread money across different areas such as banking, IT, pharma, consumption, etc. This way, if one sector does badly, others can still perform better and reduce overall damage.

Q33: What simple steps should a complete beginner in India follow to start safely?

A33: First, set clear goals and decide how much risk you are comfortable with. Next, learn basics of the stock market, open Demat and trading accounts with a reputed broker, and start small. Begin with mutual funds or strong large‑cap stocks, avoid leverage and complex products, and focus on learning rather than making quick big profits.

Q34: What is the exact difference between delivery trading and intraday trading?

A34: In delivery trading, you buy shares and keep them beyond the trading day, so they come into your Demat account and you can hold for days, months, or years. In intraday trading, you must close your position the same day, so you do not actually receive shares in Demat. Delivery suits investors; intraday suits active traders.

Q35: What is a market order and when is it better to use it?

A35: A market order tells your broker to buy or sell immediately at the best current price. It guarantees that your order will be executed quickly but not the exact price. Market orders are better in highly liquid stocks where price difference between buy and sell is very small.

Q36: What is a limit order and how does it give price control?

A36: A limit order lets you set the maximum price you are ready to pay when buying or the minimum price you want when selling. The trade only happens if the market touches that price or better. You get more control over price but there is a chance the order may not get executed.

Q37: What is a stop‑loss order and how does it support risk management?

A37: A stop‑loss order is a safety order you place to automatically exit a position if price moves too far against you. For example, if you buy at ₹100, you might put a stop‑loss at ₹95. If price hits ₹95, the system sells your shares and limits your loss so that one bad trade does not become very big.

Q38: What is the order book or market depth window and how can traders use it?

A38: The order book shows a list of current buy orders and sell orders at different prices with quantities. It helps traders see where buyers and sellers are lined up and how much interest there is at each level. This can guide them in choosing entry and exit prices more smartly.

Q39: What is bid‑ask spread and why does a wider spread increase costs?

A39: The bid is the highest price buyers are offering, and the ask is the lowest price sellers are asking. The gap between these two is the bid‑ask spread. A wide spread means you effectively pay more when buying and get less when selling, increasing hidden trading costs, especially for frequent traders.

Q40: What are upper and lower circuit limits on Indian stocks?

A40: Upper and lower circuits are daily limits on how much a stock’s price can go up or down in a single day. If the stock hits the upper circuit, trading may stop on the upside; if it hits the lower circuit, it may stop on the downside. These limits are there to control extreme volatility and panic moves.

Q41: What is margin trading and how does it affect profit and loss?

A41: Margin trading means you borrow money or use pledged shares from your broker to trade bigger positions than your own cash would allow. If the trade goes in your favour, your profit as a percentage of your money can be higher. But if it goes wrong, losses also grow faster and can wipe out your capital quickly.

Q42: What is pledging of shares and when is it used?

A42: Pledging shares means giving your shares to the broker as security to get extra margin or a loan. You still own the shares, but they are marked as pledged. It is used when you need funds but don’t want to sell holdings. However, if markets fall and you don’t maintain margin, the broker can sell pledged shares.

Q43: What is fundamental analysis and what are its main components?

A43: Fundamental analysis is the study of a company’s business and financial health to decide if its share is worth buying. It looks at profits, sales growth, debts, assets, management quality, competition, and industry conditions. The goal is to find companies whose real value is higher than the current market price.

Q44: Which financial statements should equity investors learn to read first?

A44: Investors should start with three main statements: the profit and loss statement, which shows revenue and profit; the balance sheet, which shows assets and liabilities; and the cash flow statement, which shows actual cash coming in and going out. Together, they give a full picture of how strong and stable a business is.

Q45: What are important valuation ratios like P/E, P/B, and ROE?

A45: P/E (price‑to‑earnings) compares the share price to earnings per share and shows how much investors are paying for each rupee of profit. P/B (price‑to‑book) compares share price to book value per share and helps in asset‑heavy businesses. ROE (return on equity) tells how efficiently the company uses shareholders’ money to generate profit.

Q46: What is technical analysis and how is it different from fundamental analysis?

A46: Technical analysis focuses on price and volume charts rather than company financials. It uses patterns, indicators, and trendlines to guess where prices might move in the short to medium term. Fundamental analysis answers “what to buy,” while technical analysis mainly answers “when to buy or sell.” Many traders use both together.

Q47: What are candlestick charts and why are they popular?

A47: Candlestick charts show how price moved in a time period using a candle with a body and shadows (wicks). The body shows open and close, and the wicks show highs and lows. They are popular because they quickly show who was in control (buyers or sellers) and help identify reversal and continuation patterns easily.

Q48: What are support and resistance levels?

A48: Support is a price level where a stock often stops falling and starts going up because buyers become active there. Resistance is a level where a stock often stops rising and starts falling because sellers become active. Traders use these levels to plan entries near support and exits near resistance.

Q49: What are common chart patterns like double top, head‑and‑shoulders, and triangles?

A49: A double top looks like an “M” and forms when price fails twice near the same high, often signalling a possible downtrend. A head‑and‑shoulders has three peaks, with the middle one tallest, and can also warn of a reversal. Triangles show price squeezing into a narrow range before breaking out up or down.

Q50: What are popular technical indicators like Moving Averages, RSI, and MACD?

A50: Moving Averages smooth price to show the overall trend. RSI (Relative Strength Index) tells whether a stock is potentially overbought or oversold. MACD (Moving Average Convergence Divergence) uses two moving averages to show trend direction and strength. Traders combine these indicators with charts to make better decisions.

Q51: What is portfolio allocation between equity, debt, and other assets?

A51: Portfolio allocation means deciding what part of your total money goes into different asset types like equity, debt, gold, and cash. A young or aggressive investor may keep a higher share in equities, while a conservative or near‑retirement person may prefer more debt. Good allocation balances growth and safety.

Q52: What is portfolio rebalancing and how often should it be done?

A52: Rebalancing means bringing your portfolio back to your planned mix when market moves disturb it. For example, if equity grows to 80% but your target was 60%, you sell some equity and add to debt. Many investors rebalance once a year or when the mix drifts beyond set limits.

Q53: What is the difference between small‑cap, mid‑cap, and large‑cap mutual funds?

A53: Large‑cap funds mainly invest in big, well‑established companies and are usually more stable. Mid‑cap funds invest in medium‑sized companies that can grow faster but are more volatile. Small‑cap funds invest in smaller companies with high growth potential but also high risk and deeper falls in bad markets.

Q54: How are short‑term and long‑term capital gains on listed shares defined in India?

A54: For listed shares, if you sell within 12 months of buying, the profit or loss is called short‑term. If you sell after holding more than 12 months, it is called long‑term. Different tax rates and rules apply to short‑term and long‑term capital gains.

Q55: How are short‑term capital gains on equity shares taxed?

A55: Short‑term capital gains from listed equity and equity mutual funds (where required tax is paid on transactions) are taxed at a special flat rate set by the government. These gains are added to your total income tax calculation but use that specific rate. Always check the latest rules for the current percentage.

Q56: How are long‑term capital gains on equity shares taxed and what exemption limits apply?

A56: Long‑term capital gains above a certain yearly limit from listed equity and equity mutual funds are taxed at a lower, special rate, while gains up to that limit may be tax‑free. The exact limit and rate can change in budgets, so investors must check the current rules before filing returns.

Q57: How are dividends from Indian companies taxed for retail investors?

A57: Dividends from Indian companies are now added to your total income and taxed at your normal income‑tax slab rate. Earlier, companies paid a separate dividend tax, but now that is removed. If total dividends from a company cross a certain limit, some tax may be deducted at source and adjusted in your return.

Q58: How is investing through Demat different from investing via mutual fund SIPs?

A58: Investing through Demat in direct shares means you pick each company yourself and manage when to buy or sell. Investing via SIP in mutual funds means a manager chooses and manages a diversified basket for you. Direct shares offer more control and responsibility; SIPs are simpler and more hands‑off for beginners.

Q59: What is an ETF and how is it different from an index fund?

A59: An ETF (Exchange Traded Fund) is a fund that tracks an index but is bought and sold on the exchange like a share during market hours. An index mutual fund also tracks an index but is bought from the fund house at the day’s NAV. ETFs usually have lower costs but require a Demat and trading account.

Q60: What are sectoral and thematic funds and when should they be used?

A60: Sectoral funds invest mostly in one sector, like banking or pharma. Thematic funds invest based on a broader theme, such as consumption or infrastructure. They can give high returns when the chosen area does well but can also fall sharply when that sector or theme is out of favour, so they are better for experienced investors.

Q61: What is insider trading and what activities are banned?

A61: Insider trading means buying or selling shares based on important information that is not yet public, like big results or merger news. People who work in or closely with companies may have such information. Using it to profit before the public knows is illegal and punishable.

Q62: What is front‑running and why is it unethical?

A62: Front‑running happens when a broker or person with knowledge of a big client order trades for themselves first to benefit from the expected price move. When the big order hits, the price changes and the front‑runner profits unfairly. This cheats the client and breaks trust, so it is banned.

Q63: What is algorithmic trading and how is it regulated in India?

A63: Algorithmic trading uses computer programs to automatically place trades based on preset rules or signals. These systems can send orders very quickly and in large numbers. In India, such trading is regulated with special approvals, risk checks, and rules so that it does not harm market stability or fairness.

Q64: Who are FIIs and DIIs, and how do their flows affect Indian indices?

A64: FIIs (or FPIs) are foreign investors like foreign funds who buy and sell in Indian markets. DIIs are domestic institutions like Indian mutual funds and insurance companies. When FIIs or DIIs buy heavily, markets and indices often rise; when they sell heavily, markets can fall. Their flows are closely watched by traders.

Q65: What is a stock split and how does it affect price and number of shares?

A65: In a stock split, a company increases the number of shares and reduces the face value so that total value stays the same. For example, in a 1:2 split, one share becomes two shares, and the price roughly halves. It makes the share look cheaper per piece and can improve liquidity.

Q66: What is a share buyback and why do companies do it?

A66: In a buyback, a company buys back its own shares from existing shareholders, either through the market or a tender offer. This reduces the number of shares in the market. Companies may do this when they feel the share is undervalued or want to return surplus cash to shareholders in a flexible way.

Q67: What are derivatives and why were they introduced in India?

A67: Derivatives are financial contracts whose value depends on an underlying asset like a stock or index. Common examples are futures and options. They were introduced to help investors and companies manage risk (hedging), to improve price discovery, and to allow traders to take positions with lower capital using leverage.

Q68: What is a futures contract and how does it differ from buying equity in the cash market?

A68: A futures contract is an agreement to buy or sell an asset at a fixed price on a future date, traded on the exchange. You pay margin instead of full amount, which gives leverage, and profits or losses are settled daily. In cash equity, you pay full price, own the shares, and there is no expiry.

Q69: What is an options contract and how is it different from futures?

A69: An option gives the buyer the right, but not the obligation, to buy or sell the underlying at a fixed price before or on expiry. The buyer pays a premium and can choose not to exercise if it is not profitable. In futures, both sides are obliged to settle, and there is no such “right without obligation.”

Q70: What is a call option and when do traders buy calls?

A70: A call option gives its buyer the right to buy the underlying at the strike price. Traders buy calls when they think the price of the stock or index will go up strongly before expiry. Buying a call gives upside exposure with limited loss, which is only the premium paid if they are wrong.

Q71: What is a put option and when might investors buy puts?

A71: A put option gives its buyer the right to sell the underlying at the strike price. Investors buy puts when they expect prices to fall or want protection on a portfolio they already hold. If prices fall sharply, the put can gain value and help reduce or offset losses on the underlying holdings.

Q72: What does in‑the‑money, at‑the‑money, and out‑of‑the‑money mean in options?

A72: For a call option, in‑the‑money means the current price is above the strike, at‑the‑money means it is near the strike, and out‑of‑the‑money means it is below the strike. For a put option, it is the opposite. These terms show whether the option has immediate value or only time value.

Q73: What are option Greeks like Delta, Gamma, Theta, Vega, and Rho in simple terms?

A73: Delta shows how much the option price may change if the underlying moves by one unit. Gamma shows how fast Delta itself changes. Theta measures how much value the option loses each day due to time passing. Vega shows how sensitive the option is to changes in volatility. Rho shows sensitivity to interest‑rate changes.

Q74: What is open interest and how is it used with price and volume?

A74: Open interest is the total number of outstanding futures or options contracts that are still open and not closed or expired. If price and open interest both rise, it often suggests new positions are being added in the direction of the move. If open interest falls, it can suggest people are closing positions.

Q75: What is implied volatility and why is it crucial in option pricing?

A75: Implied volatility reflects the market’s view of how much the price of the underlying may move in the future. Higher implied volatility means higher option premiums because bigger moves are expected. Option traders watch it closely to decide when options are relatively cheap or expensive compared to usual levels.

Q76: What is mark‑to‑market in futures and how are daily gains or losses settled?

A76: Mark‑to‑market is a daily process where the exchange compares the day’s closing price of the futures to the previous day’s price. Any profit is added to your margin balance, and any loss is deducted. This way, gains and losses are settled every day instead of only on expiry.

Q77: What are initial margin and maintenance margin in F&O trading?

A77: Initial margin is the minimum money you must deposit to open a futures or short options position. Maintenance margin is the minimum balance you must keep to continue holding the position. If your margin falls below maintenance due to losses, you get a margin call and must add funds or your positions can be squared off.

Q78: What are span margin and exposure margin in the Indian derivatives framework?

A78: SPAN margin is calculated using a risk model that estimates how much your position might lose in one day under different scenarios. Exposure margin is an extra safety amount over and above SPAN. Together they form the total margin you must maintain for your futures and some options positions.

Q79: How does the peak margin framework affect intraday and F&O traders?

A79: Peak margin rules require that traders keep enough margin throughout the day, not just at the close. Brokers collect margin based on the highest exposure during defined snapshots. This reduces extremely high leverage that was earlier common in intraday trading and makes traders keep more real capital for their positions.

Q80: What is calendar spread trading in futures?

A80: A calendar spread means taking opposite futures positions in the same underlying with different expiry months, such as long near‑month and short next‑month. You are not betting directly on big up or down moves, but on how the price difference between the two expiries changes over time. It often uses less margin than two separate futures.

Q81: What is a covered call strategy and when might long‑term investors use it?

A81: A covered call is created when you own shares and sell a call option on those same shares. You earn the option premium as extra income. If the price crosses the strike, your shares may be taken away at that price, so long‑term investors usually use this when they are okay selling shares at a higher target level.

Q82: What is a protective put strategy and how does it hedge risk?

A82: A protective put involves buying a put option for shares you already own. If the share price falls sharply below the strike, the put increases in value and reduces your net loss. It works like an insurance policy: you pay a premium to protect yourself against big downside while keeping upside open.

Q83: What are multi‑leg option strategies like straddle, strangle, and iron condor?

A83: A long straddle means buying a call and a put at the same strike, expecting a big move in any direction. A long strangle is similar but uses different out‑of‑the‑money strikes, making it cheaper but needing a larger move. An iron condor combines selling a call spread and a put spread to profit when price stays in a range.

Q84: How is income from F&O trading generally treated for tax in India?

A84: In India, profit or loss from futures and options is usually treated as business income, not capital gains. It is added to your other income and taxed as per your income‑tax slab. You can also deduct certain trading‑related expenses, but you must keep proper records and follow turnover and audit rules.

Q85: What records should an active derivatives trader keep for tax reporting?

A85: An active trader should keep contract notes, broker statements, bank statements, and yearly profit‑and‑loss reports. They should also record expenses related to trading, like internet, data feeds, or advisory fees. These records make it easier to calculate correct profit, turnover, and any business expenses at tax time.

Q86: What is turnover for F&O trades from a tax audit perspective?

A86: For F&O, turnover usually means the total of all profits and all losses taken in absolute terms, not the full value of contracts traded. For example, profit of ₹40,000 and loss of ₹60,000 means turnover of ₹1,00,000. This figure helps decide if a tax audit by a chartered accountant is needed.

Q87: How can traders decide whether to treat their activity as business income or capital gains?

A87: Very frequent buying and selling, use of leverage, and F&O trading generally point to business income treatment. Longer‑term holdings in cash equity with low turnover are usually treated as capital assets. It is important to be consistent in reporting and consult a tax professional to avoid confusion or disputes with the tax department.

Q88: What is short selling in equities and how is it done in India?

A88: Short selling means selling shares you do not own, hoping to buy them back later at a lower price and keep the difference as profit. In India, for normal retail traders, this is mostly allowed only on an intraday basis in the cash segment. For longer‑term shorts, traders generally use derivatives or stock lending and borrowing.

Q89: What are stock lending and borrowing mechanisms in India?

A89: Under the stock lending and borrowing system, long‑term investors can lend shares they hold to borrowers for a fee. Borrowers, often traders, use these shares for short selling or other strategies and must return them later. The whole process is handled through approved intermediaries and exchanges under SEBI rules.

Q90: What is index futures trading and how does it differ from stock futures?

A90: Index futures are contracts based on a market index like Nifty or Bank Nifty instead of a single stock. They give exposure to a whole basket of companies at once and avoid company‑specific news risk. Stock futures are tied to individual companies and react more to that particular company’s results and announcements.

Q91: What is the volatility index, often called India VIX, and how do traders interpret it?

A91: India VIX is a number that shows how much volatility or price movement the market expects in the near term, based on Nifty option prices. A high VIX means traders expect big swings; a low VIX means traders expect relatively calm markets. Option traders use VIX to choose strategies suited to high or low volatility conditions.

Q92: What is pairs trading or statistical arbitrage in equities?

A92: Pairs trading means finding two stocks or instruments that usually move together and taking opposite positions in them when their prices move too far apart. You might go long the cheaper one and short the costlier one. The idea is that their relationship will return to normal and you profit from that adjustment, not from overall market direction.

Q93: What is high‑frequency trading and which risks does it add to markets?

A93: High‑frequency trading (HFT) uses powerful computers and fast connections to place and cancel large numbers of orders within milliseconds. It can add liquidity and narrow spreads, but if not controlled it can also increase sudden spikes, mini flash‑crashes, and a lot of order‑book noise, so regulators put rules to manage these risks.

Q94: How do corporate actions like mergers, demergers, and schemes of arrangement affect shareholders?

A94: In a merger, shareholders of the company being taken over usually get shares or cash of the new combined company. In a demerger, one big company is split into separate entities and shareholders get shares in the new company too. These actions can change share counts, valuations, and business focus, and sometimes unlock hidden value.

Q95: What is ESG investing and how is it changing stock selection?

A95: ESG investing looks at environmental, social, and governance factors along with financial numbers when choosing companies. Investors prefer businesses that care about pollution control, employee treatment, community impact, and strong, clean management. Over time, such companies may face fewer big risks and can attract more long‑term capital.

Q96: What is factor investing in equities?

A96: Factor investing means building portfolios to focus on certain measurable traits, like value (cheap stocks), momentum (recent strong performers), quality (good balance sheets and profits), or low volatility. Instead of only picking single stories, investors follow rules that tilt their holdings towards these factors, which research suggests can improve returns over time.

Q97: How do global macro events like US Federal Reserve policy or crude oil prices impact Indian equities?

A97: When the US Federal Reserve changes interest rates or signals policy shifts, it affects global money flows and risk appetite, which can change foreign investment into Indian markets. Crude oil price moves affect India’s import bill, inflation, and profits of some sectors. So global news often influences Indian indices, currency, and sector moves.

Q98: What risk‑management rules should a professional trader follow?

A98: A professional trader usually limits risk per trade to a small part of total capital, uses stop‑losses, avoids over‑leveraging, and sets maximum acceptable drawdown for the account. They follow written trading plans, keep records, and cut losing trades quickly instead of averaging endlessly. Good risk management keeps them in the game for the long term.

Q99: Which behavioural biases hurt traders and investors the most?

A99: Common harmful biases include overconfidence (thinking you are always right), loss aversion (refusing to book small losses), confirmation bias (only listening to views you already agree with), and herd behaviour (blindly following the crowd). Being aware of these biases and using rules helps reduce emotional mistakes.

Q100: What structured learning path should a serious learner in India follow from basics to advanced trading?

A100: Start with basics: what shares are, how exchanges work, account opening, order types, and simple investing. Then learn fundamental and technical analysis, risk management, and tax basics while practising with small amounts or virtual accounts. Only after this foundation should you move to futures, options strategies, and algorithmic trading, always keeping risk control as the top priority.