A Cute Conversation Between Rita, Mita and Bata on Stocks & Trading Process

Hey Everyone!!!! This is a small story or you can call it a cute conversation happened between 3 friends. Rita and Meeta are two engineering graduates who just got into a software firm. Bata is a Charted Accountant & a senior employee in the same firm. Time made them good friends. And one day during lunch time……

Rita: Oh my god!! It’s such a hectic day. Lots of issues. Had not even a minute free.

Meeta: Ya true re… Even my schedule was similar. Totally packed. But Rituu, we should have lunch at correct time. 2:30 is too late. God help us.

Rita: Hmmm.. true. By the way, wherez Bata? You called him? Is he coming.

Meeta: ya… I called him… Must be on his way…. Ya… here he comes….

Bata: Hey girls!!! Sorry if I’m late.. Hw r u doing?

Rita: Ya.. busy persons… Always late : ) … Went to meet your girl friend?

Bata: No re baba… got stuck with my stock broker over the phone.. He kept dragging my time….

Meeta: Stock broker? U own stocks?

Bata: Yup. I’m a Charted Accountant my dear… obviously I love doing stock trading. It is one of my major modes of investment

Rita: Wow. That’s great!! Actually I wanted to learn something about stocks for a long time. I heard that it is a good way of making money. Can you plz tell me something about it?.. I seriously wanna learn.

Meeta: Yo yo.. Even I’m interested. I’m a spendthrift & I wanna control it. May be some investment like this will help.

Bata: Hmmm ok girls. Not a problem. But I can’t say something for free. U should pay me something.

Meeta: Ok guruji.. Tell me wat do u want?

Bata: I’ll let u know that once I finish it. But it is very small. I need your word on it. Can I have it?

Rita: Hmm.. Alright.. If it is something we can do, We’ll definitely do it.

Bata: Cool!!! Then, let me order my lunch & we can start our discussion.

After 10 min…

Tell me girls, what do you wanna learn?



Meeta: Well, from the scratch, start with what is a stock?

Bata: Hmmm. Very well. The Definition of a Stock Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.

Rita: What do you mean by ownership in the company?

Bata: Yes, this means that technically you own a tiny sliver of every piece of furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company's earnings as well as any voting rights attached to the stock.

Rita: So, if I own a stock, can I go and sell a part of company’s building if I wish to?

Bata: Ha ha… Good one. Technically speaking you can. But, practically you can’t. More importantly, you are only entitled to a portion of the company's profits and any voting rights attached to the stock. With some companies, the profits are typically paid out in dividends. The more shares you own, the larger the portion of the company (and profits) you own. At any time, as the value of the stock rises, your profits will also soar.

Meeta: Oh!! Will there be only profits in stock trading? No losses?

Bata: Oh yeah!!. I’m coming to that. The probability of having a loss cannot be ignored in stock trading. It depends on various factors. You may lose as much as you gain. It is un predictable.

Rita: How does a stock take its birth? Who decides its price?

Bata: Very good question. Before that, you should ask me one more question. You are buying a stock means, somebody (or the company) is selling it right? Why should the company sell it and make you one of its owners? What does there for it in this deal?

Rita: Yah!! Bata. Correct. It didn’t strike me. Plz tell me know.

Bata: Hmm. It’s very simple. Initially while starting a company, if it does not have enough capital to do the business, it will come to the public and raise funds for itself. In return, it will offer a part of its ownership to the public who invest in it in the form of shares. This is called Initial Public Offer (IPO). This is how a stock takes its birth. Once the IPO is closed, those shares which were offered remain with the public and trading on these shares would commence. The initial price of the stock is decided by the Company and some Investment Bankers considering various factors.

Rita: Ok. Sounds fare. So, are there any types of stocks?

Bata: Why not? Loads. But for you, I’d like to tell a few of them.

A Common Stock: Common stock is just that, "common". The majority of stocks trading today are in this form. Common stock represents ownership in a company and a portion of profits (dividends). Investors also have voting rights (one vote per share) to elect the board members who oversee the major decisions made by management. In the long term, common stock, by means of capital growth, yield higher rewards than other forms of investment securities. This higher return comes at a cost, as common stock entails the most risk. Should a company go bankrupt and liquidate, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

Preferred stock: represents ownership in a company, but it usually does not give the holder voting rights (this may vary depending on the company). With preferred shares, investors are guaranteed a fixed (or sometimes variable) dividend forever, while common stocks have variable dividends. One of the main advantages to being a preferred stockholder is that, should the company experience financial trouble and have to liquidate, you would be paid off before the common stockholders (but still after debt holders).

Rita: Who will make a record of all these transactions?

Bata: Ya. In our job, everybody should report to someone else who will maintain the record of the tasks we do right?, likewise in stocks, the Stock Exchange makes maintains the record of transactions made. In general, all the transactions should be attested by the stock exchange before getting executed. So, in layman terms, Stock exchange is a “facilitator of trading process”.

Meeta: You mentioned “Trading of stocks”. What does that mean?

Bata: “Trading” bluntly means Buying and Selling of stocks. It is the simplest way of defining it. It is a sequence of transactions made across various traders.

Meeta: How does this trading happen? What is it’s process?

Bata: Wow!! I’m very happy that you girls are asking so many questions. I like the enthu you have. Well, I’ll explain you the trading process with an example.

Let us say you want to buy 100 stocks of Satyam at 45 rupees. What you will do is:

1. Go to a stock broker; issue your order to your broker.

2. The broker passes your order to the stock exchange

3. Stock Exchange makes note of your order and searches for some other order that is willing to sell 100 stocks of Satyam for 45 Rupees.

4. If it finds it, it executes the trade between these two orders and the funds / stocks are transferred between the two brokers.

5. In India Bombay Stock Index (BSE), National Stock Exchange (NSE) are two major exchanges where trading takes place.

Rita: It sounds so simple. Wow! Tell me more about this exchange and the process.

Bata: Ya I seriously want to explain you more about:

1. Markets

2. Stock Exchanges

3. Index

4. Stock terminology

5. Factors Influencing the stocks

6. Trading process.

I even want to show you some examples. But it is about time that I should leave. I’m already late.

Meeta: Where can I get more details about the basics of Stocks?

Bata: You can google through numerous web sites. Also next week there is gonna be a knowledge session taken up by my friend Chaitanya on “Stocks & Trading Process”. It may help you in understanding the basics better. You can even invite your friends to attend the session.

Rita: Wow!! That’s great.

Bata: Ok. Finally, wat about my Fee?

Meeta: Ya ya. Ask what do you want?

Bata: Ok Now that you’ve learnt something, I don’t want it to get wasted. Share the knowledge you have with your friends, It helps them. Also, it makes you better and gives you satisfaction. PROMOTE WISDOM. Can I have your word on this?



Rita, Meeta: Yeah. You definitely can have it. We promise you that.

Bata: Ok then girls. Thanx 4 listening. Have a great day. See you in the evening. Ba bye

Rita, Meeta: Ya. Thank you Bata. Bye. Take care. Have a nice day.