What is Stock Market? - Explained in Simple way.

What is Stock Market ?

If you are new to the stock market then you are on right place. I will take you to each and every detail of stock market. Most of the people don’t know the advantages of investing in stock market and what returns investing can bring to them.

World’s best stock investor Warren Buffett says, “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”

Stock or Share represents a unit of company which is made public. You can buy that share for a relatable price. For example, if you bought 10 shares of Rs. 1000 each for a company named XYZ, it implies that you have given your 10,000 Rs. ( 10×1000 ) to that company and now you became the shareholder of that company.

Now the stock that you have purchased is yours. You can keep it as long term investment or you can sell it to another person looking for that stock. This allows you to sell your stock anytime.

Investing in shares allows you to multiply your income. It gives you the freedom to fulfill all your dreams like education, buying a house, cars, etc.

But, you can never succeed in a field if you don’t have enough knowledge about it. As we all know, “ Knowledge is Power. ” Without knowledge you cannot derive the desired output. You have to learn the strategies and algorithms of stock market. And that’s why I are here to explain you all about stock market.

Investing at a young age and staying in the market can bring high returns. As you start trading at a young age you will gain valuable experience about the stock trading.

Believe me, In Stock trading experience plays a very important role. It is the key to earn.

Referring to stock trading, Edward Lampert says, “ The entrance strategy is actually more important than the exit strategy. ”

By buying share, you are investing your money in the company. As the company grows, your stock values grows. You can get your profit by selling the shares in the market. But, if the company you have invested in is on the verge of downfall then you can encounter loss of money that you invested. The principle of investing in stock market works from both sides. Either you will be in profit or in loss.

There are various factors that affects your share value. Longterm investments can nullify the fall in price. Factors that affects the price can be business deals, political issues, international deals, etc. You can’t handle those situations and that is why we need ample of knowledge about stocks.

You might have heard the people talking about risks of investing in stock market. But, anything done with experience and knowledge is always fruitful. Most of the people fail in stock market because they don’t have enough knowledge. They do not study trading deeply. Another big mistake one does while investing is Investing Big. Remember, do not invest big amount on initial stage. If you fail in trading, you will have to suffer great financial loss.

Companies which wants to expand their business make their company public with the help of share market. A company require capital for their expansion and therefore they make it public.

The process by which company issues shares is called Initial Public Offer (IPO).

The trading contains two parts of market.

i)                  Bull market – The market where the prices of stocks keep rising.

ii)                Bear market – The market where the prices of stocks keep falling.

There are two types of Stock Market

1} Primary market

2} Secondary market

1] Primary Market-

A new company enters the market to raise funds. If the company enters for the first time then it is called Initial Public Offering (IPO). The companies are generally listed on the stock market through primary market. While going for an IPO, the company has to provide its details to SEBI (Securities and Exchange Board of India) for its verification. Company has to provide the details like its promoters, its expansion, its finances, price band, etc.

2] Secondary Market-

Secondary market is individual based market. Individuals can perform trading of stocks. You can buy or sell your stocks here. Secondary market offers investors a chance to sell all its shares and exit the financial market. This is done through a stock broker.

For example, Shares of Reliance are trading in the market at Rs. 500 a share. An investor can buy these stocks at current rate of market and will get part ownership of the company and become a share holder. By becoming a share holder, an investor earns a part of profit but at the same time the investor also undertakes the risk to bear equivalent loss.

The shares bought in the primary market can be sold in secondary market.

You can earn money by investing in shares in three forms,

     1.    Dividends- This implies to the profits earned by the companies. These profits are distributed among the shareholders. It is distributed according to the number of shares you own.

     2.    Capital Growth- Investments in shares for longer duration can lead to capital growth. The longer duration of investments, the higher the returns.

     3.    Buy Back- The company buys back its share from the investors on a higher value than the market price.

Where all these Buying and Selling occurs?

The two streams available in India for the trading is NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). These are regulated by SEBI (Securities and Exchange Board of India). The brokers are the connections between Stocks and Investors. They act as an intermediate between market and investors.

To start investing you have to open a demat account with a broker. You can open demat account online easily through a simple process. After linking your bank account with these accounts, you can start your investment journey.

“You never know what kind of setup market will present to you, your objective should be to find opportunity where risk reward ratio is best.”

                                                                                                             -Jaymin Shah 

If you want to know about stock market in detail then let me know in the comment section.

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