The share market, which is often regarded as the stock market, is a very important aspect of a country’s economy. This market is a platform of operations from which companies sell their part of ownership in the form of shares or stocks to investors. This provides a way for entities to make money from private ownership interests and individual investors to make investments that could end up as profitable. To begin with, learning the investment method may be hard, but discovering the correct information and acquiring the proper guidance from a reliable source greatly helps trading. In this detailed guide, we will explain all the aspects of the share market by exploring the fundamentals, terms, and strategies one can use during trading or investing.
What is the Share Market?
The share market is a financial marketplace where buyers and sellers come together to trade shares or stocks of publicly listed companies. It acts as a platform for companies to raise capital by issuing and selling shares to investors. In return, investors receive a stake in the company’s ownership and potential future profits.
The share market operates through a network of stock exchanges, such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India. These exchanges provide an organised environment for trading activities, which ensures transparency and fairness in the buying and selling.
How Does the Share Market Work?
The share market works through two main markets: the primary market and the secondary market.
- Primary Market for Stocks: When a company wants to raise capital, the first step is to offer part of its shares through an IPO. In this process, the company gathers funds in return for the shares offered to investors, who can purchase those shares at the public offering prices. The money collected via IPO normally goes toward corporate expansion, debt servicing, or other purposes related to the company’s operation.
- Secondary Market: After a company’s shares are listed on a stock market through an IPO, they become available for trading in the secondary market. Here, existing shareholders can buy or sell their shares to other investors. The secondary market facilitates the buying and selling of shares among investors, allowing for continuous trading and price discovery based on supply and demand.
Key Roles in the Share Market
The following is the breakdown of some important identities in the share market:
- Stock Exchanges: The stock exchange is a regulated platform where equities are bought and sold. BSE and NSE are the leading stock exchanges in India.
- Stockbrokers: A person or firm licensed to handle buy and sell orders for investors and the stock exchanges; they play the role of the link between them.
- Investors: Investors are the people (either individuals or institutions) who directly invest money in the equities of companies, aiming to profit from capital appreciation and dividends.
- Regulators: Regulators are entities like the Securities and Exchange Board of India (SEBI) that regulate the share market, ensuring fair practices and protecting investor interests.
Why Invest in the Share Market?
Investing in the share market has various possible advantages. This includes:
- Capital Appreciation: As companies grow and perform well, the value of their shares may increase, allowing investors to benefit from capital gains when they sell their shares at a higher price. By selling at a higher price, they can capitalise on the companies’ performance at the end of the time bond.
- Dividends: Many companies distribute a portion of their profits to shareholders in the form of dividends, providing a regular income stream to the shareholders.
- Portfolio Diversification: By investing in various stocks across different sectors and industries, investors can diversify their portfolios and reduce the potential risks. This neutralises or brings down the risk to the minimum by the change in the competition.
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Essential Share Market Terminologies
The following are some of the important terms one will hear constantly. So, understanding these terms is important to understand the share market. This includes:
- Sensex and NIFTY: The Sensex and NIFTY are benchmark indices that track the performance of the top companies listed on the BSE and NSE.
- Demat Account: A Demat or Dematerisalied Account is an electronic account that holds shares and securities electronically, eliminating the need for physical share certificates.
- Bull and Bear Markets: A bull market refers to a time of rising share prices, while a bear market indicates a decline in share prices.
- Portfolio: A portfolio is a collection of investments owned by an investor, which includes assets like shares, bonds, mutual funds, etc.
- Bid and Ask Prices: The bid price is the maximum amount a buyer is willing to pay for a share, while the ask price is the minimum amount a seller is willing to accept.
Conclusion
The share market presents a rewarding avenue and a chance to grow their wealth for investors. If one understands its fundamentals and key terminologies, one can perform well in the share market with confidence. To start with the share market, one may consider opening a Demat account and exploring reputable trading platforms like Kotak Securities Neo. With its user-friendly interface, in-depth research, and expert insights, Kotak Neo can be your trusted companion in building a strong financial portfolio and achieving your investment goals.
