If you’re new to investing and trading then you’re in the right place. In this post, we will talk about the basics of the Stock Market. By the end of this guide, you will know how the stock market works and how you can start Investing as a beginner investor.
What Is Stock Market:
The Stock Market also known as the Share Market is a collection of stock exchanges where transaction like buying and selling of securities such as shares, bonds, and other financial instruments takes place. In India, The Securities and Exchange Board of India (SEBI) regulates this industry and closely monitored The Stock Market’s operations to ensure that all listed companies comply with regulations and standards concerning disclosure and documentation.
Primary Market and Secondary Market:
- Primary Market: This is Where companies issue new shares from Initial Public Offerings (IPOs) to raise capital from the public.
- Secondary Market: This is where already issued shares are bought and sold between Investors without the involvement of the issuing company. This is the place where most of the trading takes place.
What is Stock Exchange:
A stock exchange is a place where people can buy and sell shares of a company. It’s like a marketplace where these transactions happen. just like you go to the market to buy fruits and vegetables, investors go to a stock exchange to buy and sell shares of companies. Stock exchanges make it easier for buyers and sellers to find each other and trade shares in a fair and regulated way. It’s a place where the value of shares goes up and down based on what people are willing to pay for the share.
Here are Some Major Stock Exchanges around the world where people buy and sell stocks:
- New York Stock Exchange (NYSE): This Stock Exchange is located in the United States and it is one of the largest and oldest Stock Exchange in the world. Many well-known Companies are listed on this exchange.
- NASDAQ: This Exchange is also located in the US and is known for technology-focused companies. Many Tech giants like Amazon, Apple, and Microsoft are listed in this Exchange.
- London Stock Exchange (LSE): It's based in the UK and is one of Europe's most important exchanges featuring various range of international companies.
- Tokyo Stock Exchange (TSE): TSE is situated in Japan and is one of the world's largest Stock Exchange. Various Japanese companies are listed in this Exchange.
- Bombay Stock Exchange (BSE): It's situated in India and is one of the oldest stock exchanges. BSE Is Crutial for indias financial system.
- National Stock Exchange (NSE): NSE is one of the major stock exchanges in India and it's known for its modern trading technologies and practices.
What Is Share:
A Share is like a tiny piece of ownership of a company. When you buy a share of a company you become a part-owner or shareholder of that company. The company divides its ownership into shares to let people invest in them and become part owners of a company’s success. The more share you own the more of the company you own and You might also get a share of companies profit known as dividends.
In other words, a share means partial ownership of a company. For instance, if a company issue 100 shares and you own 1 share then you hold 1% ownership of that company. The Stock Market offers the trading of shares from various companies.
How Shares Get Their Prices:
The market set the prices of a share by using the regular Demand and supply rule. When a company does well like earning good profit or getting new orders, the share price usually rises. This is happening because more people want to buy that share at a higher price, so the price goes up.
What are Stock Indices:
Stock Indices or Stock Index are the list of stocks that show how a group of companies doing in the stock market. These Indices collect certain companies' stock prices and calculate an average which helps investors to understand whether the market is going up, Down, or staying stable. These indices represent various sectors, sizes of the company, or even overall market performance. This index helps investors to see trends and make informed decisions about investing.
Here are some important Stock Market Indices that provide insight into the different markets around the world:
- S&P 500: This index includes 500 large companies from the US. This index shows a broad view of the US Stock market.
- Dow Jones Industrial Average (DJIA): This index is often referred to as “the Dow” and it includes 30 important companies in the US. This is one of the oldest and most watched indices.
- The Financial Times Stock Exchange 100 Index (FTSE 100): This index represents the 100 largest companies on the London Stock Exchange.
- Nikkei 225: This index includes the 225 largest companies listed on the Tokyo Stock Exchange.
- Sensex: Sensex is a benchmark index of the Bombay Stock Exchange (BSE) in India. This index includes 30 major companies listed on BSE.
- Nifty 50: Nifty is an index of the National Stock Exchange (NSE) in India. This index includes 50 large companies listed in NSE.
How to Calculate Market Weights for Stock Indices:
You can follow the below steps to calculate Market Weights for Stock Indices:
- First, find the total value of each company’s shares in the index. you can do it by multiplying the price of the share by the total number of shares available for trading.
- Next, add up the total value of each company in the index. this gives you the total value of the index.
- Now figure out how much each company share affects the index by calculating their individual Weight. You can do this by Dividing the value of a company shares by the total value of a whole index. if a share price has a bigger weight then any changes in its share price will have a major impact on overall index value.
Index weight helps us understand how important each company is in the index by looking at how much their share contributes to the overall value of the index.
Difference between Offline and Online Trading:
Online trading means you can buy and sell shares from your home or office using the Internet. In online trading, you just need to login into your trading account and you can do your trading. On the other hand, Offline trading is when you go to your broker’s office in person or call them on the phone to do the trading.
How Trading Works:
Most trading in India happens in two main stock exchanges: National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). These Exchanges use Computers to trade online. When someone wants to buy or sell share their orders matched using these computers. The Indian stock market mainly focused on the order rather than who is placing them. This makes things clearer for all the investors. people place orders through brokers. many brokers now offer online trading options for regular investors.
What Does a Broker Do in the Stock Market:
A Broker helps you to buy and sell shares of a company. Brokers connect people who want to buy a share with those who want to sell them. A Broker also gives you about which stock to buy or sell especially if you are new to investing. And they get paid for their help, and this payment is called Brokerage.
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Who can Buy and Sell Shares in the Share Market?
Anyone can buy or sell shares in the share market if they are allowed to make agreements. All you need to do is open a Trading account with a broker. once you have done this you can buy and sell shares in the stock market.
Difference between Trading and Demat Account:
Trading Account is a place where you make your buying and selling of stocks. On the other hand, a Demat account is like a safe storage where you hold your shares.
When you buy shares using your trading account the money is debited from your bank account and the shares you buy are credited to your demat account. when you sell a share the money comes into your bank account and the share leaves your demat account.
What is Trading and Investment:
Trading means buying and selling shares for a short time. Trading is making quick moves based on stock prices and events. On the other hand, investment is when you buy shares and hold them for a long time. Investors pick good stocks and wait for their prices to go up.
In simple words, trading is fast and short-term while investing is patient and long-term.
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What is Rolling Settlement:
When someone buys or sells shares from the stock market they need to finish the process called settlement. This means buyer get their shares and seller get their money. Rolling settlement happened when all the trades have to be settled on the same day. In simple words, the buyers pay for what they buy and sellers give the share they sold all in one day. In India, they usually follow a T+2 day settlement system, which means trading is done on the first day and the settling of these trades must be finished within two working days. Sometimes they also use the T+1 system, which means the settlement happens within just one working day.
What is SEBI?
SEBI stands for Securities and Exchange Board of India. SEBI is like a supervisor of the stock market. Because Stock Market has some risk involved, so we need someone to watch over it. SEBI does this job. SEBI looks over the stock market and makes sure it works well and keeps investors safe. Its main goal is to protect the investors, make the stock market better and control how it runs.
Difference between Equity Market and Derivative Market:
The equity market and Derivative market are part of the stock market. They are not the same but they are related. The main difference is what they trade. The equity market is where people buy and sell company shares and the derivative market is where people trade things like promises about future prices. These promises are called futures and options. These promises are connected to things like company shares and the Stock index.
Fundamental Analysis and Technical Analysis:
Fundamental Analysis is learning about a company’s business, How well its growing, how it makes money, and dealing with debts. On the other hand technical analysis is about looking at charts and past patterns and guessing what might happen in the future. People who invest in the stock market usually use Fundamental analysis, while those who trade frequently tend to use Technical analysis.
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Smallest Amount to Invest in the Share Market:
You don’t need a big amount to start. You can even buy just 1 share of a company. For example, if a share cost Rs.100, You can invest Rs.100 to buy 1 share. Keep in mind that there are additional costs like Brokerage and government charges. Government charges like GST, Stamp duty, and STT. The broker collected these charges from you and give them to Government.
Why Companies Choose to List on the Stock Market:
Companies Choose to list on the Stock Market for the following reasons:
- Listing helps companies to raise funds easily.
- the listing makes the company’s image better.
- Existing shares are easier to sell.
- It makes companies work efficiently because it has to be open and follow rules.
- It brings more money and makes it easier for people to believe in the company.
What is Merger:
A merger means when two or more companies decide to join together and become one single company. This is usually done to make the companies stronger, more efficient, and able to achieve their goals easily. Mergers happened between companies in the same industry or even in different industries. The purpose of a merger is to increase market power, reduce cost, expand product offerings, or gain competitive advantages.
Types of Mergers:
There are different types of mergers which are:
- Horizontal merger: This is when two companies like rivals, selling similar things, merge. They do this to save money, be more efficient, and control the market better.
- Verticle Merger: This is when companies that work together in a business process, like making and selling things, merge together. They usually do this to improve quality, share info better, and make more money.
- Congeneric Merger: This happens when companies in the same industry but from different business lines Merge together. Companies did this to add new products or reach new markets.
- Conglomerate Merger: This Merger happens when two or more companies from totally different business comes together. There are two types of Conglomerate Mergers which are:
- Pure Conglomerate Merger: This merger involves Companies that are very different and don’t connect.
- Mixed Conglomerate Merger: This merger happens to companies that want to expand or reach new customers.
- Reverse Merger: Reverse merger happens when a private company merges with a public company. This type of merger helps private companies to go public without issuing an IPO. It can be risky for investors since the companies don’t have the same checks as in an IPO.
Conclusion:
Understanding the basic of the stock market is important for anyone looking to go into the world of investments. The stock market is a platform where shares of companies are bought and sold, and it’s run by the principle of demand and supply. Stock indices like Sensex and Nifty Provide insight into how groups of companies are performing and also offer valuable insight into market trends.
Now that you’ve learned the basics of the stock market, take a look at our other articles about different ways to invest.
If you have any questions, please feel free to share your thoughts in the comment section below.
Disclaimer: The information provided in this article is solely the author’s opinion and not a investment advice — it is for educational purposes only. By reading this, you agree that the information does not constitute any investment or financial instructions. Do your own research before making any investment decisions.
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