What Is Share Market and How It Works

The meaning of share is to share or take a share of anything. Similarly, if we buy a part of the company or product of various companies working in the share market, then it is said that we have bought the share.

We can easily understand this through an example. Just pay attention. Suppose a company has issued shares worth five lakh rupees in the market. If we buy some part of it, then we become the owner of that part of that company.

We may keep the portion of the shares bought in the market for sale, depending on the volatility of the prices.

If the share of that company is sold at a higher price than the amount for which we bought it, then you can get silver, that is, you can earn a lot of money.

Also risk, the risk is that if the company suffers a loss, you will also suffer some loss. Because there will be some loss in all the shares you own.

If the company is profitable, then the share price starts going up, and this is the time when the shares can be sold.

A stock market or share market is a place where stocks, bonds, options and futures, and commodities are traded. Buyers and sellers trade with each other through a platform that is provided by the stock exchange.

All the trading is done online and is done only during specific hours on business days that is from Monday to Friday.

What Is Stock Exchange and Its Role

A stock exchange is where stock brokers and traders can buy and/or sell stocks (also called shares), bonds, and other securities.

All business enterprises, whether new or old need funds to meet their short-term and long-term business goals. Such big amounts can only be raised when they have a large number of investors who are willing to invest in their business.

Here comes the vital role of a stock Exchange which gives a common platform to a “Business Man” as well as to “Investor” to trade with each other.

Here, a business man can sell its company stock, and an investor can buy the same stock. Institutions like BSE give the flexibility and tools of buying and selling of stock. Stocks (shares) are nothing but ‘ownership of business broken-up into a large number of small units.

Each unit of stock can be easily bought and sold independently as per person needs. And this buying and selling of stock take place in stock exchanges like BSE and NSE.

Main Advantages of a Stock Market

As we mentioned before, corporations require a lot of capital, which is beyond the reaches of a few individuals. Stock exchange help companies raise money from a large number of people, and together these investors help them with their progress.

The other picture is when a large number of people do their independent valuation, the company’s price comes closer to its ideal worth.

1. Starting/building a business: The stock market lets companies get money from a large number of people. That means there are more options to get money to build or start a business.

2. Minimize the overall risk: It lets business to minimize its risk by spreading it to a large number of people. Since, each person is investing only a small portion of their income on the stock of a particular company, the risk of a single company collapsing doesn’t significantly affect investors.

What is a Stock

Stocks are issued by companies, public and private, to represent ownership. For example, by owning ten percent stocks of Reliance company you own a 10 percent of it. The more shares you own, the actual company you own.

Owning of 10 percent of Reliance stocks means you are not only entitled to 10% of profits it makes, but you also own 10 percent of its assets, liabilities, loans, buildings, etc.

When a company starts doing well, there will be more people who will want to be part of it, and therefore, they would be willing to pay more for its stocks. That is the basic concept that drives the price/value of a stock.

One more thing you need to remember that you also own company debts when you buy its stock. However, the debt is only to the extent that you have invested your money in that equity share.

So even if the debt very large that it is more than twice the actual value of the company even then your maximum risk would be the amount that you have invested.

Why do People Buy and Hold Stocks

People invest in stock for various reasons some expect to profit when the company profits. Some just wait so that there is an increase in price of shares, and they could sell it at a higher rate than they have bought.

It’s very similar to Retailers where they buy goods at a low price and sell in the market at high price.

A lot of people have the wrong perception about investing in a stock market.

Therefore, the majority do not invest in, and they are missing the chance of a lifetime to cash in on the greatest money-making machine man has ever invented. By the same token, they also miss the rare market opportunities when prices drop rock-bottom low, which happen only once in three to five years.