Understanding The Basics Of Stock Market

Understanding The Basics Of Stock Market

You might have heard breaking lines on the news channels like Sensex is going up Nifty is going down but Most often we feel perplexed by seeing the terms like the stock market or share market, Sensex, and Nifty.

In today’s era investment and savings are mandatory but you don’t know where to start from. Any knowledge about finances and other aspects of generating money can especially useful. Stay unruffled in this blog I will try to make you understand the stock market is as simple language as I can.

Before getting deep let me clear one thing first stock market, share market, and equity markets are the same things.

Let’s take a look at what we need to understand about Stock Market.

  1. What is the stock market?
  2. Types of the market
  3. What is Sensex?
  4. What is Nifty?
  5. Initial Public Offering
  6. Security exchange board of India(SEBI)
  7. Bank Account, Trading Account, Demat Account
  8. Difference between investing and Trading

1. What is Stock Market?

These are markets where you can buy or sell a company’s share. And buying shares of a company means buying some percentage of ownership of the company. When that company makes a profit, some percentage of that profit would also be given to you. However, if that company incurs a loss, a percentage of that loss would also be borne by you.

For eg- Let’s presume you want to establish a start-up and you have only 50,000 rupees but that’s not enough. So, first of all, you go to your friend and tell him to invest another 50,000 rupees and offer him a 50-50 partnership.so, whatever your company’s profit will be in the future 50% of it would be yours and 50% of it would be your friend’s.

In this case, you have given 50% of shares to your friend in the company. The same thing happens on a larger scale in the stock market. The only difference is instead of going to friends you go to the entire world and invite them to buy shares.

2. Types of Stock Markets – Primary and Secondary

Primary Market – The primary market is where the companies sell their shares. The companies decide what exactly would be their share price. Although there are some regulations too. The companies Cannot maneuvers too much because a lot of it depends upon the demand and how much price are people willing to pay for the company’s share.

But when companies sell their shares in the share market they never sell 100% of them. The owner always retains the majority of the shares to keep possession of his decision-making power. CEO usually has the majority of shares.

Secondary Market – it is a market where people buy and sell shares amongst themselves and trade in shares. In the primary market, the company sets the price of their shares but the companies cannot control the price of their share in the secondary market. The share price fluctuation depends upon the demand and supply of the share.

Two popular stock exchanges in India are the Bombay Stock Exchange National Stock Exchange. The Bombay stock exchange has around 5000 registered companies. The national stock exchange has 1600 registered companies. And they both are situated in Mumbai.

In order to measure the overall performance of a company’s shares prices, whether they are rising or falling, there is a measurement put in place called – Sensex and Nifty.

3. What is Sensex?

Sensex (Sensitive Index) shows the average trend of the top thirty companies of the Bombay Stock Exchange. Whether the shares of the companies are moving up or down.

4. What is Nifty?

Nifty (National+Fifty) shows the price fluctuations of the share of the top 50 companies listed on the National stock exchange.

5. IPO (Initial Public Offerings)

If the companies want to sell their share on the stock exchange for the first time then this is the term called IPO (Initial Public Offering). If a company wants to sell its share on the stock exchange then this is term as a public listing.

6. Security Exchange Board of India (SEBI).

SEBI Is a regulatory body that looks into issues like which company should be listed on the stock exchange and whether it is being done properly or not. If you want to do this (i.e get listed ) then you would have to fulfill the norms of SEBI. Their norms are very strict like they will check the accounting of your company. At least two auditors must have had checked your company’s accounting.

More than 50 shareholders should be pre-present in the company if you want a company to be publicly listed. When you go to sell their shares but if there is no demand for it amongst people then SEBI can remove your company from the stock market list.

7. Bank Account, Trading Account and Demat Account

How you can invest money in the share market…

Before the dawn of the internet, one has to physically go to the Bombay Stock Exchange. However, with the internet, you merely need three things a Bank Account, Trading Account & a Demat Account.

Bank  Account because you would need your money. A trading account allows you to trade and invest money in a Company. A Demat Account to store the stock that you buy in digital form.

When we invest money through a broker in the stock market a broker retains some money as his commission. This is called “Brokerage rate”.   

8. Difference between Investing and Trading.

Investing means putting in some amount of money in the stock market and letting it stay there for some time. You would want to invest in shares that have standard and consistent growth. What you want the growth to look like depends on your financial goals. As long as there’s a steady growth in the share prices, you continue to make some money out of the money that you have invested.

Trading means quickly putting in money at different places and withdrawing from some places. This all happens in quick succession. You would buy the shares of a company today and if you think their value is right, you wouldn’t mind selling them by the end of the day.

Of course, there are multiple variables and factors to considering but in a jiffy, that’s the main difference between Investing and Trading.

Conclusion

Covid19 situation brought a lot of people’s attention towards investing and trading in the share market. One of the reasons is that how one can easily invest and trade at the comfort of their home.

More importantly, a lot of people realized that markets crashed and were all-time low. Of course, the markets would gradually come back stronger, and people invested with that belief. This was a careful step towards making money by being observant of what was happening in the world.

Having said that, one has to start somewhere, and understanding the basics of what terms are used in the market can be helpful in making sense of what you read.

Investing or trading in share market, sounds relatively simple than what the actual case may be. I would recommend to do your research, spend time analyzing how the share prices increase and decrease. What factors cause them to fluctuate and pay close attention to what’s happening in the world from all perspectives. Everything little thing can have an impact on Stocks.

In the end, I would like to leave you with a famous dialogue of web series. called scam 1992.

Share market itna Gehra kuan hain, jo pure desh ki paise ki pyaas Bujha sakta hai.

From the web series, Scam 1992

Share markets are such a deep well, which can quench the thirst for money of the entire country.

Translated
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Prince
Prince
20 days ago

Helpful

Bhargavi
28 days ago

Amazing article..i hve ever read i must recommend people to go through this whole article

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