Share market is a platform that gives people and institutions the opportunity to buy and sell shares from a company. You all must be hearing about the share market almost on a daily basis and most of the people have this misconception that investing money in the share market is a gambling and it only leads to wastage of money. This thinking of people about the stock market is due to their lack of knowledge about investment and financial sector. Through today’s article “What is Share market” we will know all the basic things about share market which will help you in starting your journey in the investment world.
What is share market?
Share market, also called stock market or equity market, is a market where people can buy and sell shares of a company. The companies traded in this market are called public traded companies, which offer their shares to the common people through the share market. When you buy shares of a company from the market, you become a shareholder in that company. According to the performance of the company, the value of the shares of the company keeps increasing and decreasing and which causes profits and losses on your investment.
What is a share?
A share is a single unit of stake in a company. For example, a company divided its stake into 1000 parts and got it listed in the stock market. In this case, we can say that 1000 shares of the company are listed in the market and if you buy even 100 shares out of them, you will become a 10% shareholder in that company. As a shareholder you will have some rights and benefits such as:
Voting right: Whenever the managing directors of the company take any important decision related to the future and management of the company, you will have the right to vote in favor or against that decision.
Dividend: From time to time, companies distribute some part of their profits among the shareholders as a reward for their investment, which is called dividend. Being a shareholder, you will also be entitled to receive this dividend which can become a good source of your passive income.
Capital Growth: Any company can perform either good or bad in its field. Depending on its performance, the value of its shares listed in the market may increase or decrease. In case of increase in the value of shares, the value of your investment also increases.
Main parts of share market
The main parts of the share market are shown below:
Stock Exchange: As already mentioned, stock market is like a market where buying and selling of shares takes place. To operate this market, a place or a platform is required which is called stock exchange. All the stocks which are traded in the stock market are listed on the stock exchange. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the two main exchanges of India.
Brokers: Brokers are those people or institutes who act as a link between the stock market and the common people. No person can trade or invest directly in the stock market. To invest in the stock market, they have to open a demat account for trading and storing the stocks and this is possible only through brokers. There are many brokers present in India which include full service brokers and discount brokers like zerodha, Grow etc.
Market Index: Thousands of companies are listed in the stock market. It is almost impossible to track the movements of each of those companies on a daily basis. For this reason, a market index was created which includes top companies from all sectors and from whose average move we can estimate the situation of the entire market. Nifty 50 and Sensex are the main stock exchanges of India. Nifty 50 is the index of NSE stock exchange which includes top 25 stocks whereas Sensex is the index of BSE stock exchange and it includes 50 top stocks.
Market regulator: Market regulator is an institution that makes rules to maintain the proper functioning of the market and keeps an eye on the entire market so that wrong and illegal activities of any party can be stopped and investors can be protected. To be protected from fraud. In India, SEBI (Securities and Exchange Board of India) works as a stock market regulator.
Trader and Investor: Traders and Investors include people like me and you who want to earn profits by investing and trading in the stock market.
How does the share market work?
Shares of any company have to be listed in the stock exchange to be traded. The company can list its shares in the stock exchange through IPO i.e. Initial Public Offer. During IPO, any company makes its shares available for purchase by the general public for the first time. IPO remains open for a fixed time period during which the company’s shares can be purchased at a fixed price. Investors can bid at the price of shares fixed by the company. The greater the demand for the share, the higher the premium the share price is listed. Before launching the IPO, the company has to submit all the necessary information like company’s financials, objective and future objectives of the IPO etc. to the exchange and SEBI.
After the time period of IPO is over, the shares are allotted to the bidder and get listed in the stock exchange. Due to its demand and supply, IPO shares are listed in the stock exchange at a price which may be more or less than its issue price. The market in which they trade during IPO before the shares are listed is called the primary market and the market after the shares are listed is called the secondary market.
Once shares are listed on the stock exchange, any common citizen can trade and invest in them. To trade in the stock market, an investor must have a trading and demat account which he can easily open through any broker. Broker is the party that acts as a link between the investor and the stock exchange.
Crores of people trade and invest in the stock market. Whenever a trader places a buy order to buy a share, it gets listed in the broker’s order book and to match the sell order running in the exchange. When a sell order is received according to that buy order, a transaction takes place and the shares are debited from one account and credited to another account. However, it takes up to 2 days for the shares to be completely settled in the demat account. Due to the similar demand and supply prevailing in the market, the price of shares keeps changing continuously. When there are more buyers and fewer sellers of a share, the share price increases and when there are less buyers and more sellers of the share, the share price decreases. There can be many other reasons behind the increase or decrease in share price such as economic factors, news trending in the market, trend in the share by a big investor etc.
How to invest in share market?
As already mentioned, a common man requires a trading and demat account to invest in the share market. Trading and Demat account can be opened by any broker in India and both the services are provided by the same broker. An account with any broker can be opened very easily both online and offline. For this you must have your PAN card, address proof and income proof. In trading account, you are given a platform or application in which your funds are stored. From here you can track shares and place orders to buy and sell them. On the other hand, Demat account can be opened in two institutions of India, NSDL (National Securities Depository Limited) and CDSL (Central Depository Services (India) Limited.). This is the agency where your shares are stored. Your shares remain safe even if the broker changes or closes down and you do not have to apply separately for opening a demat account. While opening a trading account, the broker gives it to you.
Why invest in share market?
Share market is the best way to increase wealth quickly in a short time. Stock market gambling in the eyes of common people
Maybe or they consider it risky and stay away from it, but history is witness that many people have earned crores of rupees just by trading and investing in share market and if they work in share market with thinking and learning. If done, there can be no better way to earn money than this. Given below are some reasons due to which any common citizen must invest in the share market:
High return – Share market is the only instrument in the whole world which has the capability to double or triple your capital overnight or in a few hours. Yes, it is true that along with high returns, it also involves high risk, but if any investment and trading decision is taken after careful thinking and proper analysis, then the risk can be reduced to a great extent.
Diversification: Diversification means dividing your investment into more than one asset so that the risk can be reduced and the returns remain constant. Share market is a good means of diversification because along with investing in low risk stocks like FD, bonds, PPF etc., you can also invest in high return and high risk stocks.
Liquidity: Liquidity means how easily you can buy and sell an asset. While it takes more than a day to invest and withdraw money in other investment instruments like FD, bonds, property etc., the share market is one of the most liquid investment options. Trading goes on all the time in the stock market during working hours and you can buy and sell any stock in a jiffy without any hassle.
Share in Company – Partner in Company: Whenever you buy shares of a company, you become a shareholder in the company according to the quantity purchased. Due to these reasons, the company incurs losses or incurs losses on your invested capital.
Passive income: Those people who are looking for a means of part income along with their job, then they can make good money by trading in the share market. But it is important to note one thing here that a trade taken out of greed without thinking will only be called gambling. Therefore, give time to know and learn about the market, do your own analysis and enter into any trade only after thinking carefully and keeping the risk in mind.
Conclusion
Share market is an important part of the global market which is beneficial for both investors and companies. It gives common people an opportunity to increase their wealth and become shareholders of a company. But it is also important to keep in mind that to be successful in the share market, it is very important to have research, information and long term thinking. Every investment method involves some degree of risk, keeping this in mind one invests money in it. Similarly, the returns of share market are high but the risk in it is also equally high. Therefore, first know your risk taking ability and instead of investing all the money in this only, you can start increasing the amount by investing only a little money and slowly learning.
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