What Is the Stock Market and How to Invest in the Stock Market?

Spread the love

In the word of the famous value stock investor, peter lynch, “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you could do it”

what is Stock Market?

A Stock Market is the marketplace where you can buy and sell the shares or securities of a company that are listed under the Stock Exchanges, in a normal marketplace you’ll just buy, but here you’ll sell as well, so you control both aspects and just thereby your fate is in your own hands.
The stock market in which shares is issued and traded either through exchanges (In India there are two stock exchanges namely, BSE and NSE ) or over-the-counter (OTC) market.
In other words Over-the-counter Trading can include equities that are not listed under the exchanges, and trade via OTC, which are called over-the-counter equity securities.
However, Over-the-counter (OTC) securities are traded directly without being listed on an exchange, companies with OTC shares may raise capital through the sale of stock.

What is Share?

As a result a company needs capital or funding to grow, expand, and function. A popular way to generate money is by releasing shares of the company which are bought by the public. A company’s capital is divided into smaller units called “shares”. If you own a share of a company you hold the ownership of a company,

When an investor buys a share of the company, he becomes a part-owner of the company.

In India you cannot buy and sell the shares directly, you will have to buy and sell the share through Registered Stock Brokers.

How does the Stock market work?

The stock market works through an exchange, In India, there are 2 popular stock exchanges BSE & NSE, In this Stock exchange companies list their shares in the exchanges through a process called IPO (initial public offering), Here investors buy those shares, which allows the company to raise funds to grow its business, and then investors can buy and sell those shares among themselves on the Stock exchanges.

There are two types of market

1. Primary market.
Firstly here the company issues the shares to the public for the first time is called IPO initial public offering. After that the company will sell its shares to the investors in the exchange for capital,
And there is one more called OFS (offer for sale), Here the company’s owner will sell their shares to the public in exchange for money, but the money will not go to the company, it will go to the owner’s pocket, Indian Capital and Stock Markets are regulated and monitored by the Ministry of Finance, The Securities and Exchange Board of India, and The Reserve Bank of India.

2. Secondary Market.
The Secondary Market means it places where the investors will sell and buy the shares through Stock Exchanges, In the Stock exchanges (BSE and NSE) the investors sell and buy those shares among themselves, which means the investor will sell to another investor, if you want to purchase a particular share you can’t purchase directly through Stock Exchanges, you need a Registered Stock Brokers, where you need to open a trading account and Demat account, which help to buy and sell the shares.

Investment in Stock Market

If you think investing in Stock Market you need lots of money, then you’re wrong, you can invest the money as low as 500 rupees, and you may invest a small amount of money in businesses, which multiplies over the time due to the increase in the business value, you just have to invest your money and forget about it, it is the best way to grow your money in the Stock market.
Example: If your father invested Rs.10,000 in Wipro then he get 100 shares of Wipro company in 1980, now it would become Rs.18,534,400,000.

Two essential components of the Stock Market

There are two important participants in the Stock Market they are:-

  1. Investors:-
    Investors are those people who invest their money in the stock market on a long-term basis, investors engage in a low-risk game that involves the fundamental analysis, management analysis, and technical analysis of a company before investing.
    The investor decides after analyzing the real value of the company because the probability of losing money is much less. The rate of return is expected up to 15%, and the benefit of investing on a long-term basis comes when the value of a business increases.
  2. Speculators/Trader:-
    Speculators are those people who invest in Stock Market on a short-term basis, it involves a high-risk betting on the expected price movement of listed securities, the speculators Are instinctive and look at making immediate gains because the probability of losing money is 50% as speculating is much like betting, the profits come when the price of the share move as expected, Speculators are also known as Trader.

How do you make money as a Shareholder?

When you hold a share of a company you will earn two types of income, dividend income and other is an increase in the value of the investment.

  1. Dividend income.
    Dividend income is the profits earned by the company that is either reinvested in the business or giving away a part of the earnings to its shareholders. the profits of the company which are given to the shareholders are called dividend income.
  2. Appreciation of the value of the investment.
    One of the reasons to invest in the stock market is an increase in the value of the share price. The demand for the share is affected by the performance of the company resulting in the share price fluctuations.

5 Easiest books to read for beginners.

Before reading any books, understand the basics of the stock market by watching videos on YouTube or reading blogs.
1. RICH DAD POOR DAD – by Robert t. Kiyosaki
2. THE PSYCHOLOGY OF MONEY – by Morgan housel
3. LEARN TO EARN – by Peter lynch
4. COFFEE CAN INVESTING – by Saurabh Mukherjea, Rakshit Ranjan and Pranab uniyal
5. DHANDHO INVESTOR – by Mohnish Pabrai

The Best Book of Stock Market

The Intelligent Investor by Benjamin Graham.
Benjamin Graham is known as the father of value investing.

Investor Warren Buffett also mention this book several times in his annual shareholder letter and interview.

This book was written a long time ago so it may happen that some formulas or techniques may not work today.

But the principle of value investing given in this book is equally valuable and relevant today.

How do you Invest in the Stock Market?

To start investing in Stock Market in India, the pre-requisite to start investing, you need.
1. PAN Card
2. Bank Account
3. Stock Broker
4. Demat account and Trading Account
5. UIN – Unique Identification Number

Stock Brokers

In India you cannot buy and sell the shares directly, To buy and sell the share you need to Trading and Demat Account, to open the account you need a Registered Stock Broker, Stock Brokers execute transactions such as buying and selling of shares in the Stock Market, in return, they charge a Brokerage commission.

There are three types Of stock Brokers

  1. Bank Brokers
    Bank brokers like HDFC Securities, ICICI securities, yes bank securities, etc., you will see that all major banks have the stock brokerage segment, In the bank Brokers, they are charged will be extremely high.
  2. Full-service Brokers
    A full-service Broker provides a large variety of services, like educational materials, financial advisory, they may offer you the stock recommendation, etc.
    In the full-service Brokers, they charge Brokerage up to 0.3% to 0.5% per trade.
  3. Discount Brokers
    A discount Brokers do not provide any additional service, for this reason, they charge a much lower commission.
    Since they only provide you transactional services and also they may not have the physical setups, these Brokers are may operate through only online platforms, in the Discount Broker, the charge may be as low as Rs 20 per transaction.
    Here are some top discount Brokers in India.

Top 5 Stock Brokers in India.

  1. Zerodha
  2. Angel Broking
  3. Upstox
  4. Motilal Oswal
  5. 5Paisa

What is a Trading and Demat Account?

If you want to invest in the stock market you essentially need two accounts trading account and a Demat account.

Years ago, if anyone wanted to buy and sell the shares he or his broker was required to be physically present at the stock exchange.
For Example:- if you wanted to buy shares, you had to go to the exchange with the cash, and if you wanted to sell the shares you had to go to the exchange with your physical share certificate

In 1996 SEBI introduce the Demat account to make it easier,

So, in this digital age, if you want to buy or sell shares, you can do this right through your mobile or laptop.

Trading account
Therefore if you want to transact in any security, you need an account called a trading account, buying and selling of shares are done from the trading account.
Before the cash you used to carry with you to the exchange, Now the cash will be in your trading account.

Demat account
So you can only transact in shares through a trading account, but if you want to receive those shares you need a Demat account, a Demat account stores your shares.
However physical share certificate you need to take with you to the exchange, now all those shares are stored in your Demat account in digital format, demat account is the short form of the Dematerialization account.
In India, there is two organization that maintain Demat account.

  1. NSDL:- National Securities Depository Limited.
  2. CDSL:- Central Depository Services Limited.

Those are also called Depositories.

What Is Market Capitalization?

Spread the love
<a class="heateor_sss_facebook" href="https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fsitetricks.in%2Fmarket-capitalization%2F" title="Facebook"…
Read More

What is Initial Public Offering (IPO)?

Spread the love
<a class="heateor_sss_facebook" href="https://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fsitetricks.in%2Fwhat-is-ipo%2F" title="Facebook"…
Read More

Leave a Reply

Your email address will not be published. Required fields are marked *