Basics of the stock market
All businesses need money to run a business. Sometimes the profit from the sale of goods or services is not enough to meet working capital requirements. And so companies invite ordinary people like you and me to invest money in their business so that they can run it efficiently and in return the investors get a share of the money. profits they make. Understanding this is the first step to understanding the basics of the stock market. Let’s find out more about this.
- What are stocks?
Stocks are simply an investment method for creating wealth. When you invest in a company’s stock, it means you own a portion of the company that issued the stock. Stock investing is a way to invest in some of the most successful companies. In addition, there are different types of stocks available in the market to invest/trade.
- These actions are classified according to the following criteria:
- Market capitalization
- Basic rules
- Price volatility
- Profit sharing
- Economic Trends
- How does the stock market work?
Companies raise funds in the stock market by selling shares to investors. These holdings are called shares.
By listing shares for sale on the stock exchanges that make up the stock market, companies have access to the capital they need to operate and grow their businesses without taking on debt. Investors profit by exchanging their money for shares in the stock market. When companies invest this money for business growth and development, it benefits investors as their shares increase in value over time, resulting in capital gains.
In addition, companies pay dividends to their shareholders when their profits increase. The performance of individual stocks varies widely over time, but overall, the stock market has previously rewarded investors with an average annual return of around 10%, making it one of the The most reliable to help you increase money.
KEY POINTS TO REMEMBER
- Investment is the act of investing money or capital in a business with the expectation of earning additional income or profit.
- Unlike consumption, investing makes money work so it can grow over time.
- However, investment also carries the risk of loss.
- The stock market is a popular way for investors to gain investment experience throughout their lives.
- Beginner investors can get help from expert advisors, outsource their portfolio selection and management to automated advisors, or implement their own approach to investing in stocks.
Stock Market Basics – Important Terms
Below is a list of terms commonly used when discussing the stock market. You can use it as a glossary to search whenever you want to learn.
|Sensex is a collection of the top 30 stocks listed on BSE by way of market capitalisation.
|Securities and Exchange Board of India (Sebi) is the securities market regulator to oversee any fraudulent transactions and activities made by any of the parties: companies, investors, traders, brokers and the likes.
|Demat, or dematerialised account, is a form of an online portfolio that holds a customer’s shares and other securities in an electronic (dematerialised) format.
|It is the process of buying or selling of shares in a company.
|A stock index or stock market index is a statistical source that measures financial market fluctuations. They are performance indicators that indicate the performance of a certain market segment or the market as a whole.
|It is a collection of a wide range of assets that are owned by investors. Portfolio can also include valuables ranging from gold, stocks, funds, derivatives, property, cash equivalents, bonds, etc.
|In a bull market, companies tend to generate more revenue, and as the economy grows, consumers are more likely to spend.
|Bear markets refers to a slowdown in the economy, which may make consumers less likely to spend and, in turn, lower the GDP.
|Nifty 50 is a collection of the top 50 companies listed on National Stock Exchange (NSE).
|Stock Market Broker
|A stock broker is an investment advisor who execute transactions such as the buying and selling of stocks on behalf of their clients.
|Bid price is the highest price a buyer will pay to buy a specified number of shares of a stock at any given time.
|Ask price in stock market refers to the lowest price at which a seller will sell the stock.
|Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company.
|Equity is the value that would be received by the shareholder if all of the company’s assets were liquidated and all of the company’s debts were paid off.
|Dividend refers to cash or reward that a company provides to its shareholders. It can be issued in various forms, such as cash payment, stocks or any other form.
|Bombay Stock Exchange (BSE) is the largest and first securities exchange market in India. It was established in 1875 as the Native Share and Stock Brokers’ Association. It is also the first stock exchange in India and provides an equities trading platform for small-and-medium enterprises.
|National Stock Exchange was the first to implement screen-based or electronic trading in India. It is the fourth largest stock exchange in the world in terms of equity trading volume as per the World Federation of Exchanges (WFE).
|Call & Put Option
|Call option give the investor the right to purchase the underlying security, while put option give the investor the right to sell shares of the underlying security. Both the opinion let the investors profit from movements in a stock’s price.
|Types of Stock Market
|There are 2 types of stock market:
|Ask and Close
|The term ‘ask’ in stock market refers to the lowest price at which a seller will sell the stock. ‘Closing price’ generally refers to the last price at which a stock trades during a regular trading session.
|It is a stock indicator commonly used for technical analysis to smoothen the price data by creating a constantly updated average price. A rising moving average indicates that the security is in an uptrend, while a declining moving average indicates a downtrend.