A share market is similar to a stock market. Stock market enables you to trade financial instruments such as bonds, mutual funds, derivatives and corporate stocks. The key difference is that a share market only allows the trading of shares. In this article complete guide of the basics of share market
The main function of the share market is as a source of capital for companies. Companies that wish to grow their company can go to share the market. In the share market ownership of the company is sold to investors in the form of stocks/shares. Individual stocks constitute business ownership divided into tiny units. These tiny units are referred to as stocks that can be purchased/sold on the stock market
The key factor is the stock exchange
The key factor is the stock exchange is the basic platform that provides the facilities used to trade company stocks/Shares and other securities. A stock may be buy or sell only if it is listed on a Stock exchange. In India, there are two primary exchanges; the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE)
There are two types of stock market.
1. Primary Market
2. Secondary Market
Primary Market– When a company comes out with an initial public offer (IPO) it is called the primary market. A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called an IPO. The company thus becomes public.
Secondary Market- Once the share gets listed it starts trading in the secondary market. Buying and selling shares is largely like buying and selling any other security. There is chance for trader/investors to exit from the investment and sell the shares in Secondary market transactions are referred to trades where one investor buys shares from another investor at the prevailing market price or at whatever price the two parties agree upon.
Online share trading
Online share trading is the process of buying and selling of shares through the internet on the secondary market with a view to profiting from the difference in the buying price and selling price. The share price of a stock is determined by the demand and supply of a particular share.
The broker assists you in carrying out your purchase and selling business. Typically, brokers assist buyers in finding buyers and vendors in finding buyers. Most brokers will also give you advice on which stocks to purchase, which stocks to sell, and how to spend cash for beginners in share markets. They will also help you in stock market trading. Brokerage is charged for that service.
There is no minimum investment needed since you can purchase a company’s 1 share. So if you buy a stock with a price of Rs.50/- and you just buy 1 share then you just need to invest Rs.50 for Investment you require Demat Account
Demat Account – The Demat account is the account that should be started to buy or sell shares in the stock market.Demat Account is an account that enables investors to hold electronically their stocks. Stocks in the Demat account remain in dematerialized form. It is most important in the basics of share market
Other Financial Instruments Traded In A Stock Market?
We have understood what a share market basics and investment is, let us understand the financial instruments that are traded:
1. Bonds:
Companies need money to undertake projects. They then pay back using the project’s cash earned. One way is through bonds to raise resources. In return for periodic interest payments, when a business borrows from the bank, it is called a loan. Likewise, when a business borrows in return for timely interest payments from various investors, it is called a bond.
2. Mutual Funds:
These are investment vehicles that enable you to invest in the stock market or bonds indirectly. It pools cash from an investor collection and then invests that amount in financial instruments. A professional fund manager handles this.
Each mutual fund system issues units that just like a share have a certain value. You thus become a unit owner when you invest. You get cash when the tools the MF scheme invests in make cash as a unit owner.
3. Derivatives:
The value of economic tools such as stocks continues to fluctuate. So, fixing a specific price is hard. The tools of derivatives are useful here. These are tools that will assist you trade at a cost you solve today in the future. Simply placed, you agree to either purchase or sell a share or other tool at a fixed price.
Stock Indices
Many companies are listed in the Indian share markets. From these, a few stocks are grouped together to form an index. The classification may be on the basis of company size, market capitalization, industry etc. The BSE Sensex includes 30 stocks and the NSE comprises 50 stocks. Others include sector indices like the Bank nifty market cap indices like the BSE Midcap or the BSE Small cap, and others.
Securities and Exchange Board of India (SEBI)
Stock markets are risky. SEBI is form for to regulate and protect investor Money. SEBI has a power and has the responsibility of developing as well as regulating the markets. The SEBI has the responsibility of both development and regulation of the market.
Why do investors buy stocks?
Investors buy stock for two reasons
For earning dividends (a sum of money paid regularly by a company to its shareholders out of its profits)
For claiming capital appreciation: Capital appreciation is dependent on the growth of the company’s assets and earnings. If the company’s earnings (profit per share) are increasing, its market price will certainly increase in the same proportion
No minimum investment is required as you can even buy 1 share of a company. So if you buy a stock with a price of Rs.50/- and you just buy 1 share then you just need to invest Rs.50.
This is all about the basics of share market #HAPPYINVESTING