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Basics of Share Market

Basics of Share Market

What is the share market?

First of all, what is a share? A share is equity ownership in any company, so to simplify this let us understand it with an example if you own a 100% stake in a company worth Rs. 10,000, you are in need of some money so you decide to sell your 25% stake in the company worth Rs. 2500, here you have two options that you can sell your stake to huge net worth or institutional investors or you can sell it in public, so if you opt to sell it in public you need to divide it into small parts called shares so if you keep the price as Rs. 100 per share so means that by buying one share the investor becomes an owner of 1% in the company, in reality, the ownership of one share is very low. Didn't got it that what is a share? Just read it again you will get it. 

Note: Share market is also called the stock market, so don't get confused when someone says stock market.

A share market is a place where the trading and listing of shares takes place. Now here come questions that what is trading and listing of shares. First of all, let us understand what is trading? Trading is nothing but buying or selling of shares. What is the listing of shares? So listing is a very long process but let us not get much deep into it and just get the basics of it. Listing of shares can be done by bringing an IPO(Initial Public Offering) of the company. So let us continue with the example we discussed here so we decided the price, now we will be getting out our IPO, any company to get listed on stock exchanges its IPO must get a minimum of 90% of subscription of issued amount. So I think now there might be a question that what is a stock exchange? An exchange a place where the trading of stocks takes place. for example, in Indian, we have two big stock exchanges NSE (National Stock Exchange) and BSE (Bombay Stock Exchange), Stock exchanges can be also said as bourses.

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Now here comes a question that how will the shareholder (the person who owns shares) of the company will make money? Investors can make money in two ways (1) Investors can earn money when the price of a share rises and the investor sells the shares and (2) When the company pays dividends, so dividends are the profits divided among the shareholders (Note: It depends on the management of the company the whether they want to distribute dividends or not and if yes then how much dividends to be given). 

Why do prices go up and down?

Prices go up and down due to demand. So the rise in price is due to demand the share of the company, the more the demand more the hike in price. And the fall in prices is more sell order for the share of the company. When we look at the companies like Apple, Infosys, etc. did not raise in one day they took years to become such huge companies. They had risen due to their consistently good performance, good growth and etc. factors. So while buying shares of any company for the long term we must look at its business future outlook, growth factors, etc.

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Who regulates the stock market?

To see that whether everything in the stock market goes with the flow here in India we have SEBI (Securities and Exchange Board of India). With the objective to protect investor's interests, SEBI is given powers according to it. Before the Harshad Mehta scam SEBI was not having much power and was not much active but after the Harshad Mehta scam when Rs. 1000 billion were lost in the market cap. and many of the investors lost money SEBI got very active and the government gave many powers to it.

How we can track the stock markets?

To track the stock market there are some instruments called index. An index is an instrument that tracks some companies, for example, Nifty 50 which tracks the top 50 companies of India, and Sensex which tracks the top 30 companies of India.

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How to buy and sell shares?

For buying, selling, or holding of shares we require a Demat account and trading account. For the Demat account, we require a stockbroker, mostly all the stockbrokers open Demat account with a trading account together (I prefer Zerodha which is India's No.1 Stock Broker. Click the link to open an account in Zerodha: Zerodha). We require a Demat account to hold the shares which we buy and we require a trading account to buy or sell shares.

Investing in stocks is easy. Follow the steps given below:

Step 1: Open a Demat account with any Indian stockbroker

Step 2: Then add funds for the purchase of share(s).

Step 3: The search for the Company you want to buy.

Step 4: Add the quantity you want to trade.

Step 5: Click on Buy/Sell



That's all about Basics of Share Market

Until next BlueSten Markets Update... 

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What is Nifty 50 and Sensex? How is Nifty 50 Calculated? Which are stocks in Nifty 50?

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