Advantages And Disadvantages Of Share Market

Advantages and disadvantages of share market

Are you also new to the share market and thinking of investing? Being a new investor, it becomes very important for you to know how much profit and to what extent you can lose in the share market. Before making any kind of investment, we should know about its advantages and disadvantages. This is very important so that one can take a better investment decision and avail high returns with minimum loss. Through this article, we have tried to tell you the advantages and disadvantages of share market, but before knowing it, let us take a look at what is share market?

What is Share Market?

Share market is a market where shares of different companies are bought and sold. Share means a part of the company which can be purchased by paying some price. Here different buyers and sellers trade and invest in these shares with the aim of earning profits. If share market is a market then stock exchange is the place where this market is organized and brokers are the shopkeepers who work to connect traders/investors and the exchange. Earlier the shares market used to work in physical state where all the shares were issued in the form of certificates but now they are stored in digital form in demat account.

Benefits of Share Market

High Return: Share market is such a medium which has the ability to give you very high returns in a very short time. It is almost impossible to expect such returns in any other investment sector. If stocks are selected thoughtfully and through proper analysis, there is no better way to earn wealth than this.

You can make money in the market through two things, either trading or investing. In investing, this work is done for a long period and for that one must have the ability to tolerate the ups and downs of the market. On the other hand, if one learns trading well and becomes skilled in it, then making big money in a very short time is not a big deal. It doesn’t matter.

Portfolio Diversification: Diversification means not making all your investments in one place but in different assets and sectors, so that even if a situation like recession and epidemic comes tomorrow, some money will remain in such a place which will not be affected by the ups and downs of the market. Can also give an average return and which can be useful when needed.

If you are young and can take risk, then keep maximum part of your portfolio in the stock market. There is risk in this, but if even one of the companies you invest in performs well, then that one stock is enough to make you wealthy.

Owning a part of Company: Generally, investment in big companies is done by big corporates and financial firms which is in crores and billions, but share market is the only means which allows us to own a share in a company even in small amount. Gives the ability to give. Share means a part of the company and even if you buy just one share, you are still a shareholder in the company.

Investment in very less Amount: If we talk about investment in any asset, a minimum price is fixed for investment everywhere. Share market is the only place where you can start investing even with a very small amount. Shares of almost every price are traded in the share market which can range from 50 paise to lakhs. In this way, investors can start investing by purchasing company shares even with a small amount.

Liquidity in investment: Liquidity means how easily you can buy and sell any share. The more shares a company has in the stock exchange and the more people trade them, the higher the liquidity. During the trading time, crores of shares are bought and sold every second, therefore, except in a few situations, one can easily buy and sell shares during the trading time.

Dividend and Bonus: From time to time, companies keep rewarding their shareholders in the form of dividends and bonus shares in return for their investment. In both these ways, the company shares its profit share with the shareholders, which is a good source of passive income.

Protection from Inflation: The stock market can provide protection from inflation because long-term returns on stocks have historically been higher than the rate of inflation. When the price of products and services increases, the value of money decreases, which reduces people’s spending power.

It is important to note that the stock market can be volatile in the short term, and there is no guarantee that stocks will always deliver positive returns. A well-diversified portfolio that includes a mix of stocks, bonds and cash can help control potential risk and balance stock market returns while protecting investors from inflation.

Disadvantages of Share Market

High Volatility: High volatility in the share market is a condition when the prices of shares change rapidly with big fluctuations. This could be due to a number of factors including economic conditions, political events and a sense of fear among investors. High volatility can make it difficult for investors to take good trading decisions and further increases the risk in the market. It is important for investors to keep a close eye on market conditions and consult a financial advisor before taking any investment decision.

Market Crash: Share market crash means a sudden huge fall in the prices of stocks listed in the market. This usually happens with high volatility and panic selling. Market crashes can be caused by many factors including economic decline, political crisis, natural disaster, sudden change in market sentiment and war. The decline in stock prices could last for several months or years, with serious consequences for investors and the economy.

High Brokerage: Brokerage in the stock market refers to the fees charged by brokerage firms for executing trades on behalf of their clients. These fees may vary depending on the firm and the trade being made. In some cases, the fees can be quite high, making it difficult for some investors and traders to make profits.

However, it is important to remember that brokerage firms provide valuable services, such as research and financial advice, that can help investors make better decisions. Additionally, many online brokers now offer commission-free trading, making it affordable for investors to trade and invest in stocks.

Lack of Control: There are many factors in the stock market that can affect its performance and it is difficult for investors to control them. Some of the factors affecting the stock market include economic conditions, government policies and global events. Apart from this, investors’ attitude towards the market can also play an important role in determining stock prices.

One of the main reasons for the lack of control in the stock market is that it is a decentralized market, in which there are many different participants and there is no single entity that can control the market. Additionally, the stock market is complex and is constantly influenced by related economic, political and social factors.

Scams and Frauds: Cases of scams and frauds often come to light in the share market, in which small investors lose their hard-earned money. Some common types of stock market scams include pump-and-dump schemes, insider trading, and Ponzi schemes. In a pump-and-dump scheme, fraudsters artificially inflate the price of a stock by spreading false information about the company. Then they “dump” their shares and sell them at a higher price, causing huge losses to investors who bought the stock at a higher price.

Insider trading occurs when a person uses private information to trade in shares. This is illegal and considered fraud. Ponzi scheme is a type of investment fraud where investors are duped by promising high returns in a short time. It is very important for investors to be aware of these scams and analyze the market and stock before investing.

Complexity: The stock market can be complex due to many reasons. One of these reasons is the huge number of shares and other assets listed for investment. With so many options to choose from, it can be difficult for investors to know which stocks to buy or sell and when to do so. Apart from this, the stock market is affected by economic, political and many other global factors, due to which it can be difficult to predict what will happen next.

Another complex part of the stock market is derivatives i.e. options and futures. Derivatives can be risky, especially for investors who do not fully understand them and trade them just to make a quick buck. Additionally, the stock market involves a lot of technical analysis and complex mathematical models, which may be difficult for some investors to understand.

Short Term Focus: Some investors invest in the share market with short term focus instead of long term investing. This short-term focus can be motivated by many things, such as the desire to get more returns in less time, the influence of media and social media, etc. This short-term focus can be harmful because investors take emotional decisions due to FOMO instead of paying attention to the actual fundamentals, financial conditions and future growth prospects of a company. In this way, decisions taken in haste and without thinking can lead to loss in investment.

Conclusion

In the end, I would like to say that like any investment instrument, the share market is also not free from risk, but by taking investment decisions wisely and after analysis, these risks can be kept under control and high returns can be availed. Therefore, before taking any kind of investment decision, do the analysis as per your understanding and invest your money in any stock only after knowing everything.