Stocks and shares are some of the most important contributors to the country's economy and are not just limited to named and famed ones like the National Stock Exchange of India or the Bombay Stock Exchange. Anyone can participate in trading stocks and making investments in the share market. In fact, this is a viable way of generating wealth and making your money work.
Getting into the hare market can be as challenging as it is exciting. This article covers the basics of share market to make navigating the world of investments easier.
You might have heard people use the terms "share market" and "stock market" interchangeably. While these are quite similar, they do, in fact, have key differences. Stocks are the financial securities of a company that represents partial ownership. On the other hand, a share is the smallest unit or denomination of a particular company's stocks.
In essence, a stock market is a larger free market where you can trade financial securities for multiple companies and, in turn, earn money from their profits. A share, on the other hand, is limited to a single company. A share market constitutes a smaller part of the stock market.
Whenever you buy shares of a company, you effectively become a partial owner of that company. You can then gain dividends from the profits that the company makes on a monthly or quarterly basis. It also increases the value of the company in the market.
However, it is also important to know about share market that if the company incurs losses, investors will also bear them.
The share market basics constitute an interconnected web of brokerage firms, exchanges, and clearing organizations. It comprises of 2 parts:
This is where companies issue their securities and shares for the first time and offer them to be traded with the public at large. This is known as the Initial Public Offering or IPO. Once companies list themselves on stock exchanges and offer their shares, they officially enter the share market.
This is where investors trade shares offered in the primary market by companies through a stock exchange broker who acts as the facilitator.
Buying and selling stocks on the same day is called intraday trading, where you can garner a profit or a loss at the end of the day.
When garnering share market information, it is important to know the types of shares available in the Indian market. They are:
These are ordinary or basic shares that a company makes available to buyers. These comprise the major bulk of the shares that they issue. These are transferable, and equity shareholders get to vote on the company's internal matters. They also have rights to the company's dividends. However, these dividends will not be a fixed amount.
Know More about Why Should You Buy Equity Shares?
As the name suggests, these shareholders are prioritized when it comes to receiving company profits. They enjoy greater security, such as being paid earlier than ordinary or equity shareholders in the event of the company's liquidation.
When getting started with learning about the share market, one of the first challenges that beginners can face is not being familiar with the share market vocabulary. Here are some common words that are share market basics for beginners:
Terminology | Meaning |
Stock exchange | The free-market platform where stocks and shares are traded |
Demat | The type of account which is the online stockroom vault for securities and shares |
Trading | Buying and selling shares and stocks |
Equity | The money shareholders are to receive if a company is liquidated |
Bull Market | State of the stock market when prices keep increasing |
Bear Market | State of the market when pieces fall sharply |
Stock market Broker | The individual who facilitates shares and stock transactions |
Bid price | The maximum a customer will pay for a collection of shares |
Ask price | The lowest selling price set by the seller |
Dividend | The money or benefits a company gives its shareholders |
Investments and shares can be quite difficult to navigate for beginners. There are numerous terms and matters that people who are out of the loop may find challenging to break into. However, learning about investing your money is an important way of empowering yourself financially and exercising personal autonomy.
While there's a common belief that share markets are nothing but risks and losses, sufficient research, data, and testimonials prove otherwise. Knowing how to work it in your favor and grow your financial assets comes with learning about the share market so that you can make more informed economic judgments to secure your future.
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