Derivatives

Derivatives are financial contracts, whose values are derived from value of an underlying asset. The underlying asset on which derivatives are based can be commodities, equities (stocks, residential mortgages, commercial real estate loans, bonds, interest rates, exchange rates, or indices (such as a stock market index, consumer price index (CPI) or even an index of weather conditions, or other derivatives). Credit derivatives are based on loans, bonds or other forms of credit.
The main types of derivatives are futures, forwards, options and swaps.
Derivatives are usually used to reduce risk that the value of the underlying asset will change unexpectedly.
Because the value of a derivative is contingent on the value of the underlying asset, the notional value of derivatives is recorded off the balance sheet of an institution, although the market value of derivatives is recorded on the balance sheet.
There are three major classes of derivatives:
Futures/Forwards are contracts to buy or sell an asset on or before a future date at a price specified today. A futures contract differs from a forward contract in that the futures contract is a standardized contract written by a clearing house that operates an exchange where the contract can be bought and sold, while a forward contract is a non-standardized contract written by the parties themselves.
Options are contracts that give the owner the right, but not the obligation, to buy or sell an asset on or before a future date at a price specified today. If the owner of the contract exercises this right, the counterparty has the obligation to carry out the transaction.
Swaps are contracts to exchange cash (flows) on or before a specified future date based on the underlying value of currencies/exchange rates, bonds/interest rates, commodities, stocks or other assets

Technical Analysis

Technical analysis is a technique that claims the ability to forecast the future direction of security prices through the study of past market data, mainly price and volume. In its purest form, technical analysis considers only the actual price and volume behavior of the market or instrument, on the assumption that price and volume are the two most relevant factors in determining the future direction and behavior of a particular stock or market. Technical analysts may employ models and trading rules based, for example, on price and volume transformations, such as the relative strength index, moving averages, regressions, various oscillators, inter-market and intra-market price correlations, cycles or, classically, through recognition of chart patterns.
However, there are also many stock traders who proclaim technical analysis not as a science for predicting the future but instead as a valuable tool to identify favorable trading opportunities and trends. The assumption is that all of the fundamental information and current market opinions are already reflected in the current price and when viewed in conjunction with past prices often reveals recurring price and volume patterns that provide clues to potential future price movement. In the foreign exchange markets, and commodity markets its use may be more widespread than fundamental analysis.

Fundamental Analysis

Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. It is different from other types of investment analysis, such as quantitative analysis and technical analysis.
Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives:
to conduct a company stock valuation and predict its probable price evolution,
to make a projection on its business performance,
to evaluate its management and make internal business decisions,Fundamental analysis maintains that markets may misprice a security in the short run but that the correct" price will eventually be reached. Profits can be made by trading the mispriced security and then waiting for the market to recognize its "mistake" and reprice the security.Various tools and ratios are used for Fundamental analysis such as the Balance sheets, Profit and loss A/c ,P/E Ratio EPS all of which give the overall picture of the organisation as a whole

What are Stocks

A share (also referred to as equity share) of stock means a share of ownership in a corporation (company). In the plural, stock is often used as a synonym for shares. Stock typically takes the form of shares of either Equity Share or Preference Shares. As a unit of ownership, Equity Shares typically carry voting rights that can be exercised in corporate decisions. Preference Shares differ from Equity Share in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. Convertible preference share is preferred share that includes an option for the holder to convert the preference shares into a fixed number of equity shares, usually anytime after a predetermined date.Although there is a great deal of commonality between the stocks of different companies, each new equity issue can have legal clauses attached to it that make it dynamically different from the more general cases. Some shares of common stock may be issued without the typical voting rights being included, for instance, or some shares may have special rights unique to them and issued only to certain parties. Note that not all equity shares are the same.

Meaning of Stock-Indexes

A stock market index is a method of measuring a section of the stock market indices. The compilation of many stock market indices is mainly influenced by news or financial services firms and are used to benchmark the performance of portfolios such as mutual funds. Stock market indices may be classed in many ways. A broad-base index represents the performance of a whole stock market — and by proxy, reflects investor sentiment on the state of the economy. The most regularly quoted market indexes are broad-base indexes comprised of the stocks of large companies listed on a nation's largest stock exchanges, such as the British FTSE 100 the French CAC 40, the German DAX, the Japanese Nikkei 225 the American Dow Jones Industrial Average and S&P 500 Index, the Indian Sensex the Australian All Ordinaries and the Hong Kong Hang Sang Index
More specialized indices exist tracking the performance of specific sectors of the market. The BSE FMCG Index, for example, consists of major Indian companies from the FMCG industry. Other indexes may track companies of a certain size, a certain type of management, or even more specialized criteria.

What is a Stock-Exchange

A stock exchange is also known as a securities exchange .It is a common platform for buyers and sellers of securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, units of mutual funds and other pooled investment products and bonds To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Only Members are permitted to trade on a Stock Exchange The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important constituent of a stock market. Supply and demand in stock market is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation). Increasingly, stock exchanges are part of a global market for securities.