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Day 64: Basic Stock Market Concept
What is “Leverage
in Stock Trading”?
Answer: Leverage
means using borrowed money (or margin) to increase the size of your trading
position beyond what you could afford with your own cash. For example, if you
have ₹1 lakh in your portfolio but use leverage to buy ₹5 lakh worth of shares,
you’ve increased 5 times of your exposure. While it can boost profits when
things go well, it magnifies losses just as much during odds.
Tip: Use leverage
cautiously—and have stop-losses in place.
What is
“Collateral”?
Answer: Collateral is
an asset you pledge as security to a lender so they can lend you money. If you
don’t repay, the lender has the right to take the collateral. In stock trading
or loans, your shares, property or other assets may serve as collateral.
Why it matters: It reduces
lender risk—but you risk losing the asset if you default.
What is “Pledging
of Shares”?
Answer: Pledging
shares means you keep ownership of your shares but hand them over (or mark
them) as security for a loan. Essentially you’re borrowing against your shares,
using them as collateral.
Caution: If the share
value falls, you may face a “margin call” or your shares may be forcibly sold
by the lender.
What are
“Liabilities”?
Answer: Liabilities
are the debts or financial obligations a company (or individual) owes to
others. They appear on the balance sheet and include loans, bonds, unpaid
bills, etc.
Why it matters: A company
with large liabilities relative to its assets may be financially risky.
What is the
difference between “Net Profit” and “Net Profit Margin”?
Answer:
Net Profit is the
absolute profit amount left after all expenses, interest, taxes, etc., are
paid.
Net Profit Margin is the
percentage of revenue that becomes net profit (Net Profit ÷ Revenue × 100).
Example: If a company
earns ₹100 crore revenue and ₹10 crore net profits, its net profit margin is
10%.
Why use the margin? It enables
comparison across companies of different sizes.
What does it mean
if a company’s IPO is “Subscribed 8 times”?
Answer: When an IPO
(Initial Public Offering) is open, investors apply for shares. If it is
subscribed 8 times, it means the demand was eight times the number of shares
offered. So, when an IPO is oversubscribed, then there is no guarantee that all
the applicants can get allotment.
Implication for investors: High
subscription may signal strong interest—but it doesn’t guarantee listing gains
or long-term performance. Always check fundamentals.
What is “Listing
Day Gain in IPO”?
Answer: After a
company’s shares get listed on a stock exchange, the “listing day gain” refers
to the difference between the IPO issue price and the closing (or peak) price
on the first trading day.
Why it attracts attention: It shows how
much the market value the shares initially. But big gains may also reflect hype
rather than value.
What is a “Trade
Deficit”?
Answer: A trade
deficit happens when a country imports more goods and services than it exports
during a given period.
What it means for an investor: A large trade
deficit might put pressure on the country’s currency and may influence
inflation or interest rates—factors that can affect domestic companies and
markets.
What is
“Indexation”?
Answer: In
investment/taxation context, indexation adjusts the original cost of acquiring
an asset upwards by taking inflation into account. This higher acquisition cost
reduces the taxable capital gain when you sell the asset.
Why important: It helps
ensure you are taxed on real profits, not just numbers inflated by inflation.
What are “Economies
of Scale”?
Answer: Economies of
scale occur when a company’s cost per unit drops as it produces more—thanks to
bulk procurement, better efficiency, spreading fixed costs over more units,
etc.
Why it matters to investors: Companies
with good economies of scale often have cost advantages and may sustain higher
profitability or competitive edge.
if you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
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