Everyone admires to invest in share market. But the majority of us do not know the basics of the share bazaar. We will answer all your questions in this post.
Do you want to learn more than buy and sell in share market? And would you like to earn higher profits like professional at a Wall Street? Instead of learning advance share market concepts, make your core strong.
Below is an entry-level guide to share bazaar that you should know. They are useful to market terms that will clarify all your basics to share market.
Stock Market Origin
How stock market form? When planning to start a small business many business owners struggle to raise capital. Companies start seeking for different sources to raise capital. Some of the possible fund options are to ask from family members, friends, use personal savings, or get a loan from a bank. But what in the case when a company is a need for a large capital amount like Rs. 50 cores?
How Company Source Capital?
A company will surely reach the bank to raise funds. There are only 50% chances that the bank will approve a loan to a start-up. Adding more cons to this situation, the bank charges a huge amount of interest on this capital.
So, planning to get a loan from a bank has its own disadvantage of paying the debt. Under this possibility, getting a loan from a bank to operate a business is not an eligible idea.
Finding an Investor
How a company find investors? An alternative option is to find an investor who can offer capital in the company. Finding investors takes a quality idea and pitch to find success. The advantage to source funds from investors is not to repay a loan.
An investor is a person or an entity who keeps a portion of a profit from the business. They commit capital with the expectation to receive nominal financial returns.
Private Investment Channels
As a business grows, they require more capital to increase sales and profits. Here come venture capital and angel funding. They are a form of private equity that offers investment in startup companies or small business that believe to have long-term growth.
A venture capital company invests in a business in exchange for equity or ownership stake in the company. Now, business needs more capital to expand. The above two sources of funding – bank and venture capital have their own limitations. The next approach to generate investment from the public.
Share Market for Business
Share market is an insanely useful way to source capital from the public. A small business owner may consider expanding the business from share market. What is the share market? A share market is a place where the general public (investors) invests in a company to generate profits. A share market is similar to the stock market.
The key difference is that a stock market allows trade of securities like bonds, futures, options, derivatives and other commodities. Share market allows to trade shares only.
How Does Share Market work?
Investors get a part of the ownership of a company by buying a share of the company. Investors benefit from stock investing by making profits from the business. Thus, investors refer to a company’s ‘shareholder’.
Difference between share and stock market
The investment decisions are influenced upon company past, present, and future growth. A company offers public shares of a company is a form of prospects which is known as IPO. IPO stands for Initial Public Offering. It is a process of offering shares of a private organization to the public in a new stock issuance.
Types of Share market
The share market is primarily divided as the primary market and the secondary market. A primary market is a place where the company registers to issue a certain amount of shares to raise money.
The secondary market is the place where investors buy and sell securities they already own. Typically, an investor calls out a transaction using an intermediate such as a broker to facilitate the process.
A stock market beginner can be overwhelmed with the stock exchange. A stock exchange or securities exchange is a place where stock brokers and traders buy and sell securities. For instance, shares, currency, gold, crude oil, commodity.
Once the investors make an investment in a company, business spends the money in the market. Here comes the role of the stock exchange. The stock exchange like National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) regulate and monitor the share market activity. An investor sells shares in the stock exchange.
Stock exchange facilitates the issue and redemption of securities. Initial public offerings of stocks is done in the primary market. Subsequently traded in the secondary market. A stock exchange is the most important aspect of a share market. Surprisingly, supply and demand in the stock market are driven by several factors.
Let’s Start with the Basics of Share Market
Now, that we’re done with the stock market terminology, it’s time to move on to frequently asked questions on basics of stock market.
How to Invest in Stock Market?
If you ask layman about how stock market investing, they will tell you they do not know. When the stock market is the biggest earning revenue stream in the world. As many stock market investors have made billions of dollars just by investing a few penny. Let’s stitch the above terminologies to understand how to invest in the stock market!
An investor can enter stock market through a trader or a stockbroker. A Demat account is a secure and convenient way to keep track of your investment in securities. It is an electronic platform where shares are kept safely. While a trading account is a type of a brokerage account represent investors to buy and sell stocks.
Opening a Demat or trading account is a simple step. You can create a Demat account online in a few clicks. You may need to wait for a few weeks for approval. During the approval process, they will verify the documents.
How to Buy Shares?
Now you have a Demat account. The next process is to buy a share. Buying a share involves the following process:
- Open Demat Account
- Add fund in the Demat account through a bank.
- Place order in the stock exchange
- A broker sends it to exchange
- Exchange finds out counterparty
- Exchange confirms to your broker
- Broker or trader debit/credit to your account
Indian Stock Exchange
Most of the share trading in India Stock Exchange takes place in its two stock exchanges – NSE and BSE. National Stock Exchange or NSE is a leading stock exchange of India. Its headquarters is in Mumbai. There are 1,952 (2019) companies listed in NSE.
Bombay Stock Exchange (BSE) is Asia’s first and the world’s 10th largest stock exchange. There are 5,439 (2019) companies listed on BSE.
Popular terms in Stock Market
There are several confusing stock market terms beginners should know. Here are a few popular terms:
- SENSEX is a benchmark index of the Bombay Stock Exchange
- NIFTY is a benchmark index of the National Stock Exchange
- Bull Market is a condition of a financial market in which prices rise or expected to rise.
- Bearish Market is a condition when securities fall 20% or more
- Stock price is driven by expectations of corporate earnings or profits.
- Stock volatility is a degree of variation in trading price. The stock price constantly fluctuates because of increasing and decreasing demand for shares.
How to Earn from the Stock Market?
We have covered the basics of the stock market. The last questions are how to earn from stock market? There are two approaches to earn from share market.
- Investors buy shares for investment at a low price and sell at a higher price. This process is known as capital appreciation. Capital appreciation is a rise in the value of the security. Investors hunt for a stock which has future stock price value have a maximum probability to increase.
- Capital dividend is a payment that a company makes to its investors that is drawn from a company paid-in-capital. Investors buy shares of a company assuming to get higher dividend.
When to Sell Shares?
There is only one reason to sell your shares. Making money in the stock market depends on the time you buy or sell a stock. Many of us find it difficult to decide when to sell a stock. This has rooted in the innate human tendency toward greed.
The right time to sell your share is when the share price value is expected to fall. This is the situation when the profit of the company decreases. The process of a decision depends on several technical and fundamental analyses. Stock market analysis gives you insight into analyzing stock market data for the purpose of investment.
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