Hey, are you new to Stock market? I will take you through the world of stock market in this article. In this article I am going to explain you, the basics of Share Market and its components with their relationship.
1. What is Share
A stock is a little piece of a company, often called a Share or Stock. Share represents a unit of ownership of the company from which you bought it.
If you own a share of stock in a Company A, you own a tiny portion of Company A, along with all the other shareholders in that company.
For example, you bought 100 shares of Rs. 200 each of X company, then you become a shareholder of X among other shareholders.
2. What is Share Market
In short, Share market is a platform where buying and selling of share happens.
A Share Market is a collaboration of buyers and sellers of stocks (shares) on a common platform called Stock Exchange like NSE & BSE in India. Share market is also know with other name like Stock Market or Equity Market.
Alongside shares of companies, other financial instruments also traded in the stock market like Bonds, Contracts and Mutual Funds.
The Stock market works as a platform where Investors can buy or sell shares of publicly listed companies through Brokers or we can say, Share Market is a interface (through Broker) between Investors, Traders and Publicly listed companies on Stock Exchange.
Share Market is the source for companies to raise Funds and for Investors to buy ownership in a business by acquiring shares of particular company. Stock Market is a place, Where Investor and Company comes together as partners and share their Profit & Loss.
3. Types Of Share Market
Basically Stock market is divided in two main types.
(a) Primary Share Market
As we know that a company raise funds through Share market by going public. The Primary Market allows a company to get registered to issue Shares to the public to raise money via Initial Public Offer (IPO).
Primary Market is the only way to get listed on the stock Exchange for a company. Initial Public Offer or IPO is a primary mechanism for companies to offer Shares for the first time. After that company becomes Public. Company has to provide details about itself, its business, its promoters, financial instruments and Stocks being issued before filing for an IPO.
(b) Secondary Share Market
After offering an IPO, company get listed on particular Stock Exchange and directly available to retail investors in Secondary Market for buying and selling their Shares. Basically, Secondary Market allows Inventors to buy and sell Shares at current price. At secondary Market all transactions are conducted through a Broker.
4. Main Components Of Share Market
Publicly Listed Companies, Stock Exchange, Trading Participants and Investors are the main components of Stock Market, these collectively forms the term “Share Market“. For better understating I am discussing main components of Stock Market & their relationship:
(a) The Publicly Listed Company and The Stock Exchange
A company applies to the Stock Exchange to offer its shares to public through Initial Public Offer (IPO). The company must comply with stringent requirements before the shares are available to the public.
(b) The Stock Exchange and The Trading Participant (Broker)
As I mentioned above, stock exchange is a platform to trade shares but does not directly deal with investors. Stock Exchange license Trading Participants to buy and sell shares, only to simplify work and purpose. The Stock Exchange is monitoring authority of publicly Listed companies while the Trading Participants transact with the investing public (Investors).
(c) The Trading Participant and Investors
If you want to start Investing in Share Market, you have to contact a trading participant (broker) for DEMAT account. For taking care of your transactions, the broker will charge you a very small fee. Broker also provides you Investing advise for companies, those are good to Investment in addition to their transaction services (not necessary).
5. How Share Market Works?
If you are one of the average people out here in India, who has only a little bit of money to invest with a little knowledge, you may often say to yourself :
How does the stock market work?
Can I invest, if I don’t have millions of rupees to spare?
It can be frightening at first, but once you learn the basics of investing in stocks, the stock market really is’t all that difficult to understand.
Here are the answers that can get you started on your way toward making some financial decisions that might just keep you in the black now and for years to come.
The basic premise of the stock market is to buy low and sell high. Maybe you have heard that before, but are you wondering just what you are buying and selling?
Do you really understand that what the stock market does?
6. How you make profit or loss in share market?
Assume that, you have bought some share(s) in a good company, and your Company A makes a profit. Thus, the value of your stock increases because the Company is now worth more than it was before it made a profit.
Now suppose that, something happens to cause Company A to fumble a bit, and the reputation of the company falls, and profits cease, you now own a tiny portion of a company that is not doing well. Therefore, the value of your stock decreases because the net worth of the company itself is declining.
That is really all there is to understanding the absolute basics of the stock market before entering. The trick, of course, is to know how to choose the right companies to invest in and when to buy the shares and when to sell them. Ideally, of course, you will buy when a company is relatively new and the cost of each share is low as well. Then, when you have chosen wisely, this new company invents a miraculous product or explodes on the scene with a terrific service and makes a profit. Then, right before the company loses momentum in profits, you sell and make a profit from your shares.
For example, you believe the recession will cause people to turn to religion, so you buy stock in a company that manufactures Books; you pay INR 10 per share and buy 10 shares, for a total investment of INR 100.
Then, Book Printers , Incorporated lands an overseas account and becomes the exclusive Book supplier for the other regions. They are soon bringing in a huge profit, and since they are, more people want apiece of the pie. So, the cost of the stock goes up to INR 20 per share. You are ecstatic and decide to sell. Now, you sell your 10 shares to other trader for INR 20 each, for a total income of INR 200. You have doubled your money. Thats how the stock market works on a good day.
As of now I assume that you have a basic Idea about Share Market and Share. Next in this article you are going to learn about the components of Stock Market and their relationship with each other.
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