In today's world, one of the best ways of growing your money is Investing your money in Stock Market. Investment in Stock Market is risky but when the Investment is done by gaining proper knowledge and the approach is in a disciplined manner then the Stock Market is the best way to grow your money faster as compare to other Investments.
In this article, we are going to discuss in detail about the stock market. you will get to know about the actual meaning of the stock market, the History of the Stock Market, How do the Stock Market works? , How to Invest in Stock Market? and other Basic things related to Stock Market.
So let's get started...
Key points discussed in the Article...
A. What is Stock?
B. What is Stock Market?
C. History of Stock Market.
D. What is Stock Exchange?
E. What is Stock Market Index?
F. How does The Stock Market works?
G. How to Invest in Stock Market as a Beginner?
H. Who regulates the Stock Market?
Before Understanding the Stock Market or Share Market you need to understand What is Stock or Share? and What is the role of share in the Stock Market.
A. What is Share?
A share is a portion of ownership in a company. To understand What a share is? first, you need to understand what a company is?
A company is a legal entity that allows its owners to conduct business under a separate legal identity, limiting their liability. When you buy some share of any company some percentage of ownership changes. The reason behind a company is selling Shares is to raise the fund. Whenever a company wants to raise its fund a company can either borrow money for the market, take a loan from the Bank and become in debt or sell some part of its ownership in the form of shares in the Share Market.
So the safes way to raise the fund of the company is to sell some part of ownership in the form of Shares because there is no need to pay the interest or return the money to the shareholders. After all, the shareholder became the partner in the company and they enjoy the capital gain if the value of the company raises.
In the case of bank loans and money borrowed from the market the company has to pay back the money with interest to the bank or the market otherwise, the company becomes in debt.
B. What is Stock Market?
Now let's get to know about Stock Market?
Stock Market is a place where buying and selling of shares takes place of public listed companies through Stock Exchange (we can further understand the meaning and working of the Stock Exchange in detail in this article). A person can not directly buy or sell any share of the company through Share Market there is a specialized body of a person for these kinds of work known as Stock Brokers. The Stock Broker is the professional trader who buys or sells shares on behalf of the clients and for this, he charges some amount of percentage which is known as brokerage. The Brokerage percentage is calculated based on the total cost of shares either purchased or sold.
History of Stock Market?
The first-ever Stock Market was started around 400 years ago. Around the 1600s, there was a Dutch East India Company. Now a Day's which is known as the Netherlands. In those times, people use to trade with faraway places with the help of ships. The journey used to be of thousands of Kilometers aboard a ship. This activity requires a huge amount of money but one person does not possess such an amount of money individually in those times. So, they publicly invited people to invest money in their ships and said that when these ships would travel a long distance to go to the other land and come back with treasures from there then some amount of share from that money will be given to all the investors. But at that time this was very risky because during those times, more than half of the ships failed to come back and the reason is that some of the ships got lost or broke down or get robbed. Anything could happen to them. So investors realized the risky nature of this enterprise. So, instead of investing in a single ship, they preferred to invest in 5-6 of them. So that at least one of them had chances of coming back. One ship uses to approach multiple investors for money. So, this created somewhat of a Share Market. there were open biddings of the ships on their docks and that's how the first-ever Share Market was created and later on, it became more successful. Today, each country has its own Stock Exchange and every country has become greatly dependent upon the Stock Market.
So, Now let's get to know about the Stock Exchange of the Indian Stock Market.
What is Stock Exchange?
Stock Exchange is a medium through which buying and selling of securities in the form of Shares, Bonds, etc takes place through the Stock Brokers and Traders. Stock Exchange is an organized market and it is also known as the Secondary Market.
In Stock Exchange, You can Buy and Sell the shares of only those companies which are publicly listed in that particular Stock Exchange. One more important thing is that the Company itself do not buy and sell their shares on the regular bases. So the shares which you are buying are not from the company directly, you are buying them from the other shareholder of that company. The same is in the case of selling the Shares.
In India, there are two major Stock Exchanges which are National Stock Exchange (NSE) and the Bombay Stock Exchange(BSE). Let's dive into this in more detail.
Two Major Stock Exchange of Indian Stock Market...
Bombay Stock Exchange (BSE)
Bombay Stock Exchange (BSE) is located in Mumbai. Bombay Stock Exchange (BSE) was established in 1875. Bombay Stock Exchange (BSE) is the first and the oldest Stock Exchange in Asia. The Bombay Stock Exchange (BSE) follows the rules of SEBI (Security Exchange Board of India). These rules have been made to protect the stock market from financial Scams and frauds.
In the olden times, a place was set where all the traders were get deposited and the process of buying and selling the shares takes place. But the process was very time taking and sometimes it takes 6 months to complete the whole process of buying and selling the shares. This problem was solved in 1995 when the whole trading process became computerized and it just takes few minutes to complete the process of buying and selling the shares. In the current scenario, there are more the 5000 companies listed on the Bombay Stock Exchange.
National Stock Exchange (NSE)
National Stock Exchange (NSE) is located in Mumbai and there are more than 1700 companies registered in it. National Stock Exchange (NSE) was established in 1992 and after the arrival of NSE, all the process of trading became computerized. Before the arrival of the National Stock Exchange, the process of buying and selling the shares takes a lot of time and sometimes it takes 6 months also. But after the arrival of the National Stock Exchange, the process became very fast and the process of buying and selling the shares can be done in just a few minutes. National Stock Exchange follows the rules of the Security Exchange Board of India (SEBI). These rules have been made to protect the Stock Market from Financial scams and Fraud We can further discuss about the SEBI in this article.
What is Stock Market Index?
Stock Market Index is just an average of a group of Stocks.
People use those indexes as a way of compare that how different sections or how the stock market whole is doing. The Stock Market Index is created by picking up the stocks of top listed companies as per some criteria like the type of the Industry, Market Capitalization, or the Size of the Company. The value of the Stock Market Index depends upon the value of the stocks of the top listed companies. If the price of the Stock of underlying Companies rises then the Stock Market Index also rises and if the price decreases then the value of the Stock Market Index also increases.
There are two major Stock Market Indexes are there in India SENSEX and NIFTY. Let's understand these Indexes in detail.
SENSEX: SENSEX is the Stock Market Index for the Bombay Stock Exchange(BSE). SENSEX shows the average trend of the top 30 companies of the Bombay Stock Exchange. SENSEX average out the share price of the top 30 companies of the Bombay Stock Exchange (BSE) and shows whether the share of the company is moving up or down. the full form of SENSEX stands for"Stock Exchange Sensitive Index". the current value of SENSEX is approx 47,000.
NIFTY: NIFTY is the Stock Market Index for the National Stock Exchange. NIFTY shows the price fluctuation of the top 50 companies listed on the National Stock Exchange. NIFTY averages out the share price of the top 50 companies of the National Stock Exchange and Shows whether the share of the company is moving up or down. The full form of NIFTY stands for "National Stock Exchange Fifty". The current value of NIFTY is approx 14,000.
How does the Stock Market Works?
Stock Market is a market where buying and selling of securities in the form of shares, Bonds takes place. The working of the stock market is done through Stock Exchange. every Stock Market has its Stock Exchange. In India, two major Stock Exchanges are there National Stock Exchange which is a leading government-owned Stock Exchange of India, and the Bombay Stock Exchange which is a Stock Exchange of Mumbai Stock Market.
The Stock Market works as both primary and Secondary Market. In the case of the primary market, new securities like shares and bonds are issued by the company that's why the primary market is known as the Issue market. In the primary market, companies sell their shares to the investors which help the company to raise their fund and investors became the partner in the company.
In the primary market, transactions are done between the Investors and the company directly. In the primary market, companies can raise it' fund through different methods like Public Issues, Private Placement, Right issues, etc.
Initial Public Offering(IPO)
When a company sells its share first time to the Investor then it is known as an initial public offering and the Stock of shares gets listed on the Stock Exchange which is also known as the secondary market.
In the case of Private Placement, companies sell their shares to the selected investors only like the mutual funds, Insurance Companies, Banks and Venture Capital, etc.
In the case of the Right Issue, companies sell their shares to the existing shareholders of the company. for example, if a company is providing a 1:2 Right Issue that case investors can buy 1 more share instead of 2 shares. The share issued in the Right issue has low share prices as compared to the current market price. Investors can only buy the shares in the primary market they can not sell them. If they want to sell those shares they can sell them in the secondary market.
In the case of the Secondary Market, the exchange of shares and money takes place between the Investors only through Stock Exchange. the company is not included in the process of Secondary Market. If you are buying the shares of any company you are not buying it from the company directly you are buying it from the other existing shareholder of that company. Secondary Market is also known as the "After Market" because the share which is selling here is already bought by the other investors.
How to Invest in Stock Market as a Beginner?
As a beginner in learning about Stock Market, you should know in how many ways an investment or trading can be done in Stock Market and which method is perfect for you. Trading is done in four ways in the stock market depends upon the period.
Which trading style would be best for you depends on your personality, your knowledge, and how much time you have to invest in that trade. To become a successful trader in the stock market, you have to analyze your psychology very well and according to that, you have to choose the best way of trading for you in the stock market.
These are the 7 best investment tips for Beginners to pick great stocks:-
1. Always check the companies track record that no financial fraud has been previously alleged on them by the government bodies like RBI, Stock exchange, etc.
2. especially if you are a beginner then chose the companies of a very reputed owner, in this case, your money will be safe.
3. Always choose the low Debt companies. the more the Debt-free company remains the less the bankrupt chances will remain and your investment will be safe.
4. Always check the sales and profit growth of the company. If the sales and profit both are increasing simultaneously then the company is considered as a good growing company and you can invest your money.
5. You should always check the Return on Capital of a company before investing because this will show that the business is good or bad. Return on the capital show's the profit margin on the total investment that has been done on the business.
6. Always check the customer satisfaction of the company which will show that the company is satisfying their customers or not. If the customer satisfaction of a company is good then the company will grow in the future.
7. Always think like an Angel Investor and compare between the two companies that how much return a company is giving you when you invest a certain amount of money and pick that one which is giving you the highest return on your investment.
So here are Some of the tips for Beginners which will help them to learn how to invest in the stock market.
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