Basics of Stock Market
Are stocks market, trading, investments the terms that intimidate you and make you anxious? Or is everything okay until it finally comes to investment and you get stuck with whether or not it’s worth investing? Do you want to know a little more about how exactly this works before you actually get started with investment? If your answer is yes, don’t worry, you are not alone in this. Most often than not, people look at this term skeptically because of the misconceptions and myths revolving around it. Another possible reason for feeling insecure about getting into this might be the fact that the stories of the Harshad Mehta Scam and Satyam scam are heard by more people than the success stories of Indian investors like Rakesh Jhunjhunwala and Ramdeo Agarwal. Wait, are you telling me you haven’t heard these names? Well, you see, this is what it is! Lack of proper knowledge and research, that scares people off even before they get started. But the reason you are reading this is definitely that you want to know about the stock market and understand how it works.
And this is exactly where you should be as by the end of this article, you’d have got all your questions answered and doubts cleared regarding the basics!
Just get a few things clear before we move forward with explaining the basics of the stock market. You might have heard people referring it to the game of gambling and might have been wondering if it’s true. For the record, it isn’t. Since this is not something which is done blindly expecting a profit by chance. Without denying that investing in the stock market is somewhat risky, it is to be acknowledged that it can be done wisely with proper calculations by delving deeper into some technicalities and trying to understand the market.
Another thing you need to keep in mind is that it doesn’t make you rich overnight. If you enter this with a short-term goal in your mind, then you should think twice. The stock market helps you manage your finances and earn you extra money but it’s something that happens if you invest with a long-term approach.
Okay! Before we dive in, let’s start with the basics.
What is the stock market?
It’s a kind of agreement where people buy and share stocks with an expiration date. Now, what exactly is a stock? It can be said to be a part of a company of whose ownership you claim. For example, let’s say, you buy 20 % shares from a company. This implies that you claim 20 % ownership of that company from which you bought the share and hence will get 20% of whatever the company profits are and will have to suffer from the company’s losses as well. A company, especially when just getting established requires funds to set up and maintain it. In fact, a company can raise additional funds for other purposes like paying debts or expanding business, etc. In order to do this, it offers shares to the public and the first offering any company makes is what is termed as Initial Public Offering. This is where investors come into the scene. The companies ask the public to provide funds or money, in other words, to invest in their company, in return for claiming a part of ownership depending upon how much money they have invested.
So, you see, it is a win-win situation for both the company which gets to make up for the shortage of funds required for starting or sustaining and the common people who get a chance to earn extra money.
Stock Market Exchange
Stock Market Exchange is the building where the agreement that is, the buying and selling of stocks takes place. There are two types of market — primary and secondary.
The companies are the ones deciding how they want to sell their shares and what would be the share prices in the primary market. It depends on how much money are the people willing to pay for the company’s shares. When these people who have bought shares from the company, sell them to other people and trade among themselves, it is called the secondary market.
While the companies fix the price in the primary market, they do not and can not control the share price in the secondary market.
Bombay Stock Exchange and the National Stock Exchange are the two most popular stock exchanges in India. Securities and Exchange Board of India (SEBI) is the body that regulates all the activities of the stock market in India from day-to-day trades to instruments being traded. If a company wants to sell its shares in the market, it has to be listed in the market. This is called public listing. And the first time a company gets listed, it is known as Initial Public Offering.
Nifty and Sensex
Sensex and nifty, the abbreviated forms of sensitivity index and National fifty respectively. These are the measurements to show the trend of shares. Sensex shows the price fluctuations of the top 30 companies registered in the Bombay Stock Exchange while Nifty shows the average trend of share prices of the top 50 companies listed on the National Stock Exchange.
The stock market is nothing new. In fact, it dates back to 400 years ago when the Dutch East India Company turned to private citizens in order to fund the expenses of their voyages in return for the ship’s profits.
However, the modern stock market has evolved significantly and so do the ways of investment. No longer is it limited to rich investors. With the advent of technology and more information available, it has become easier for common people like you and me to get involved in the stock market exchange without much hassle. And now that you know the meaning of the most important terms related to the stock market, let’s introduce you to Dalalstreet.ai. It’s a platform that uses artificial intelligence for financial and technical analysis and helps you invest right assuring you profits 90% of the time.
There’s a lot more to the stock market and thus a lot more we have in store for you. We’ll be getting into the details and specifics of the stock market one by one in the subsequent articles making it easy for you to take in all that you’ve always wanted to know about it.
Hope the time you invested in reading this was worth it.
