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People are so confused with stock prices and the stock market. Every company has its own value and it is reflected in its stock price. There is a real business behind these complex products and these stock prices. First of all, it is important to know about face value and the trading price.

Face value

When there is no change in the price of business and it remains the same. For example, a company has 1000 shares @ Rs 5 a share. If the company increases the face value of its share to Rs 10 then the no. of shares reduces to 500 only. In the above procedure, the price of business remains the same. Face value can only be changed by the company. Whenever a company changes its face value, it has the same effect on trading price because of the circulation changes.

Trading price

If a company is listed on an exchange then its share price is determined by the supply and demand of the share. If more people are buying the share then the price goes up until it finds equilibrium. If more people are selling the share, the price of share falls. The trading price of any share is directly proportional to the profit and maturity of the company.

Must Read: How to Choose Companies to Invest In the Stock Market?

What happens to the listed shares?

An investor pays for the share that are the future returns a company makes. Company’s future plans and current business is subjective to its future returns. While the overall industry and economic situation play the main role in determining the share price.

How much return will you get?

Almost complete market research is based on how much money a business will make in the future.

Must Read: How much money do you need to invest in stocks market?

Two main methods for price estimation:

Price-earnings method– It is the ratio between the current market price and trailing 12 months EPS (Earnings Per Share). This ratio shows how much will market pay today.

Cash flow method- It is a popular method for companies that do not depend on much debt.

Calculation of present value

Present value= FCF/ (1+R) n

R= Discount rate

A discount rate is defined as the lowest rate of return from the investment. The rate which bank fixed deposit demands.

N= Number of years

Must Read: Share market investment tips for early-stage investors

In a determination of stock price, 2 factors play an important role.

Forecasting of future returns

Future is uncertain and many opinions and predictions can be true. This creates different growth track for the company and people pays a different price for the same stock. This changes the company’s stock constantly.

Manipulation

A business is not run by morally pure or most ethically people. There are corrupt promoters, news breakers, insiders, operators and so on. Many sellers and buyers take the price of a share to a new level where it makes no sense.

Conclusion

Many factors are responsible for a stock’s price. Stock price depends on the company’s business, how it is going and other factors. The demand and supply of the stock are also responsible for the stock’s price, how often investors are buying or selling the stocks etc. Here we have discussed many facts that are responsible for the stock’s price.

Stock market investors are the one who simply holds basic information and knowledge of the investing. Generally, most of such individuals begin through sticking to a buy and hold trading tactic. When it comes to the stock market, there are many tips for you to select before investing. To begin with, when you find trading tips, you should notice who is providing these tips. Most of the occasion, you only follow the opinion of most successful traders in the world. Even you should ensure that you did ample research on the stocks that you decide to buy or sell during trading stocks. There are some stock market tips that will assist you to know some significant concepts of investments.

Setting Your Goals

When you invest in the stock market, it is very important to set your goals according to the stock market. This is the most essential stock market tips that you should know the stock market is explosive and there is no assurance that your investment will come back in the amount you estimated or the time when you need it. That is why you need to make a plan and set up your aim to invest in the market.

Control Your Risk

Risk management is a very essential thing that all investors must think about. It is due to uncertainty connected with it. You should try to measure the possible risk and take essential action accordingly. You must understand the value of research and taking an independent choice, it is time to realize the risks related to it. To validate your risk acceptance, you can take a survey that aims to help in recognizing the investing.

Importance of Research

Without appropriate research, the outcome may be inconsiderate. Particularly if one goes to buy a stock or make a trade in share market instantly because of several intraday trading tips. There are some ways to consider market data to enhance the chances of an excellent trade. For example, traders can use basic and technological analysis of the market things and catch out the data.

Portfolio Diversification

Investment portfolio diversification is another most important risk management tactic where you can expand your assortment by choosing other financial products such as bonds, equities, mutual funds, and derivative. Further, it can be realized by including financial products presented by different firms belong to standard sectors. The basis behind diversification is to handle the investment from market fluctuations and keep overall returns. By option, if an exact sector or company is not performing well, the other investments can continue the balance within the investors’ portfolio.

Planning Your Stock Trades

Futures are the financial contracts whereby the buyer is obliged to purchase an asset or the seller is obliged to sell an asset which can be a financial instrument or physical commodity. The transaction takes place at a predetermined future date and value. It is mentioned in the contract the quantity and quality of the asset in question. To facilitate trading on the future the assets are standardized. Some future contracts call for physical delivery of the asset while others are settled in cash.

It is seen, many futures traders make a decent profit when they start trading initially and latter encounter endless string of losses. Sometimes their losses are so huge that they eat away their trading capital too. There are common pitfalls that you must know so you can avoid them.

You can decrease your loss and improve your odds for successes. We have discussed some common futures trading mistakes here that beginners usually make.

Not sticking to the strategy once it is made

Most of the traders have a strategy in place which helps them select trades as to keep loss minimum. When they are implementing their strategies and it starts showing fruits many traders start deviating or altogether  abandon the strategy and jump to some another one. By doing so they let emotions (greed, overconfidence) to creep in which ultimately leads to losses.

Not using buy/sell limits

Like all other trading activities, futures trading also involve a certain degree of risk and it is important to protect yourself. There are a few ways one can protect himself/herself. You can limit your buy or sell to a certain value so that your loss is in your comfort level. In other words, in the eventuality of loss you can withstand it financially. You can use hedging strategies like buying puts. The steps that you take to protect yourself will help keep loss to a minimum and it will maximize your profits.

Not concentrating properly

Futures trading require your full attention to read and evaluate markets effectively. There may be some distractions which are unavoidable and you can cut down on other few distractions, fewer the better.

Not open to new ideas

As everything change with time, so does the stock market. You may think of yourself as a great trader but there is always a new idea cropping up that can help you improve upon your results. Many a time traders think that they know a lot of things and there is nothing left for them to learn. As market condition change these types of ‘stubborn’ traders are left behind and they get only loss. If you welcome changes with open arms and embrace it in the way you trade, you will be able to change with the markets and profit consistently.

The stocks that are of high quality, the companies which are established, big, renowned, and are in the market for decades are called blue chip stocks.  Blue chip stocks got their name from the poker game. In a poker game, there are three colored chips white chips (valued at $1), red chips (valued at $5), and blue chips (valued at $10). Blue chip is an analogy that is used for identifying the “most valued stock”.

Every company operates in a specific sector or industry and there can be many companies operating in similar sector/industry. There are companies that operate in several sectors but each company has a core operating sector. When we say a large market share, it means a large market share within that sector or industry. Large market share can be identified by the sales turnover of the company within that sector. You can also look for market capitalization of the company.

Why one should invest in blue-chip stocks/companies?

It is noted that first choice people make for their long term investment is for the blue-chip company. It is because the returns generated by blue-chip shares/companies are more assured in the long term. The reason being they yield consistent dividends, their future growth is more certain and during difficult times their stock price is more or less stable.

Investors like blue-chip stocks because they are consistent and high dividend yielding stock. Since these blue chip companies have a dominant market position and strong fundamentals which gives them the pricing power. Even in the bad times, their stock value does fall with the indices, but the price falling is slower, and recovery is faster.

How to identify blue chip stocks?

Apart from largest market share and highly valued in the market, there are few other factors one should look into are a strong balance sheet, highly profitable, high dividend payouts, and good investment credit ratings. More or less they are monopoly players in their segment.

All businesses are risky and have up and down cycle. What is blue chip today may not continue for a lifetime, but the probability of risk (being non-blue chip) is less for a decade or so.  So it is better that once in a while keep on checking their credit risk, in case it is downgraded there will be a bad impact on its market price and so on your returns.

Companies that are blue chip today

Here is a list of few companies that are blue chip today (as on writing this article) taking into account few factors like high absolute returns since last three years, high market capitalization, high dividend yield, credit rating, and low beta. They are TCS, Hindustan Zinc, Reliance Industries, ONGC, SBI, Hindustan Unilever, Coal India, Infosys, and GAIL (India) etc.

In case you want to know blue chip stocks in particular industry/sector which you feel will be a future growing sector you can contact us and we will be glad to help you. You can also fill the free trial form available on our site and submit it.