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share market is a place where shares are purchased and sold. It consists of both primary and secondary markets. Share market investment is an important activity that is carried out in all share markets. Investment in share market requires acquiring of an option, which is precisely the right of buying and selling a share as a holder. The right to buy is called the call option while the right to sell is known as put option. When the buyer buys an option, he needs to pay an option premium.
For
share market investment one simply has to buy a put option if he expects a price rise and a call option when a fall in price is expected. These two options are available for commodities and stocks. The swap, on the other hand, is available for currency rate exchanges.
A value of a derivative is dependent on the value of an underlying asset. The various classifications of a derivative relevant to
share market investment are as follows:
- Swap
- Futures Contract
- Forward Contract
- Option Contract
The forward contract involves an agreement between two parties facilitating the purchase of a product at a price determined in the present at a later date. The profit motive of both the buyer and seller are satisfied by this mutual agreement and the uncertainties and risks of price fluctuations in the future are aborted. A future contract is different from a forward contract in the sense that the former requires the presence of a third party and the commitment for trade is simply notional.
Before a share is chosen for investment, a technical analysis of the share is done. The price and volume of a share over a period of time are tracked and then a business plan is chalked out. A fundamental analysis involves a close study of the company and its performance overtime that is associated with the share. The fundamental analysis is more important for the share market investor.
The price levels of a traded share are as follows:
- Opening Price: This is the price at which the market opens. In other words, it is the price of the first transaction
- Closing Price: This is the price at the time of closing of the market or the price of the last trade
- Intra-Day High: This denotes the maximum price at which the share was traded in the day
- Intra-Day Low: This is the minimum price got in the day for a share.