How the market works

What this cluster is for

Most explanations of the stock market teach you vocabulary. You finish knowing what words mean and you still cannot make a single decision differently on Monday morning.

These 13 lessons are built the other way round. Each one ends with something you do on your own broker app, with your own holdings, in about a minute. The definitions are in here — you cannot skip them — but they are the scaffolding, not the point.

By the end of this cluster you will be able to:

• Tell whether a stock is expensive without looking at its share price
• Read an order book and see the cost you have been paying invisibly
• Separate a move in your stock from a move in the whole market
• Work out, before you buy, how many days it would take you to sell
• Find the 1 number in a company's filings that sits behind a striking number of Indian disasters
• Know which game the machines have taken, and which one is still open

Nothing here is a tip. Nothing here names a stock to buy. Everything here should still be useful to you in 2036, and to somebody investing in a company that does not exist yet.

The reading order

The articles build on each other. Read them in order the first time.

The instrument

1. What is a share? — why the price of 1 share tells you nothing about the size or the value of a company.
2. Where shares come from: the primary and secondary markets — in an IPO the seller picks the price and the date. In the secondary market you do.
3. What a shareholder is actually entitled to — a dividend is not free money, and a high yield is a question, not an offer.

The price

1. Why share prices move — prices move on the surprise, not on the news. Subtract the index before you interpret anything.

The machinery

1. What a stock exchange actually does — there is no single price. There is a price at a size.
2. Market makers, and where liquidity actually comes from — liquidity is a service, and it is withdrawn exactly when you need it.
3. Algorithmic trading, and who you are actually trading against — the information-reaction game is taken. Here is the one that is not.

The rules

1. The regulator, and what it does not protect you from — it mandates disclosure and punishes afterwards. It does not prevent losses.
2. Insider trading, and the tip in your group chat — if a tip is genuinely valuable, either it is false or acting on it is illegal.
3. Reading promoter and insider buying — they sell for many reasons and buy for one. And a falling percentage often means nobody sold at all.

The measurements

1. What a stock index actually measures — "the market is up" is often a fact about 5 companies.
2. Trading hours and sessions — reference. The open is a discovery mechanism, not a price.
3. Circuit breakers and trading halts — reference. A stock at lower circuit cannot be sold.

The checklist

Every article ends in an action. Collected here, they are a single afternoon's work and they are the most valuable thing in this cluster. Tick them off as you go.

Before you buy anything

• Market cap, not share price. Price × share count. (1)
• Your intended position ÷ average daily volume. Over 20%? That is a commitment, not a position. (6)
• Spread as a percentage of price. Over 0.5%? Limit orders only. (5)
• Promoter pledge percentage, and whether it is rising. (8)
• For an IPO: fresh issue against offer for sale, on page 1 of the prospectus. (2)

Every quarter, on what you hold

• Promoter holding — the share count, not only the percentage. (10)
• Pledge percentage and any auditor change. (8)
• Payout ratio, if you own it for the dividend. (3)
• Whether it has appeared on the ASM or GSM list. (13)

Habits that cost nothing

• Subtract the index move before interpreting your stock's move. (4)
• No market orders. No trading in the first 15 minutes. (5, 7, 12)
• Open the monthly statement from CDSL or NSDL. (8)
• Check the registration of anybody whose advice you act on. (8, 9)
• Vote your shares. It takes 3 minutes and almost nobody does it. (3)

India and the United States, equally

Every article covers both markets at the same depth, and then does something most explanations skip: it says where the 2 differ and what that difference tells you.

That third section is the one worth reading twice. A great deal of investing advice reaching Indian readers was written for American conditions — different tax treatment of dividends, different broker structures, different insider-trading law, different index concentration. Copied without translation, it quietly costs money. Those sections are the translation.

A note on what this is not

These lessons are free, and they will stay free. They are the text version of the ideas in our video course, written for anybody who cannot spend money on learning right now.

They will take you longer than the videos would. Some nuances are easier to show than to write. But the goal is the same one it has always been: fewer people in the 95%.

Related

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