What is Share Market I Definition of Stock Market

Stock Market

 Definition of Stock Market

Definition: It is a place where shares of public listed companies are traded. The primary market is where companies float shares to the general public in an initial public offering(IPO) to raise capital.

Description: Once new securities have been sold in the primary market, they are traded in the secondary market where one investor buys shares from another investor at the prevailing market price or whatever price both the buyer and seller agree upon. The secondary market or the stock exchanges are regulated by the regulatory authority. In India, the secondary and primary markets are governed by the Security and Exchange Board of India(SEBI).

A stock exchange facilitates stock brokers to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers. Indi’s premier stock exchanges are the Bombay Stock Exchange and the National Stock Exchange.

What is Share Market?

New to the stock market? I will take you through the world of the share market in this article. Firstly, let us learn what is share market? Share market is where buying and selling of share happens. A share represents a unit of ownership of the company from where you bought it. For example, you bought 10 shares of Rs.200 each of ABC company, then you become a shareholder of ABC. This allows you to sell ABC share anytime you want. investing in shares allows you to fulfill your dreams like higher education, buying a car, building a home, etc. if you start investing at a young age and stay invested for a long time, the rate of return will be high. you can plan your investment strategy based on the time you need money.

Share Market analysis

By buying a share, you are investing money in the company. As the company grows, the price of your share too will increase. You can get a profit by selling the shares in the market. Various factors affect the price of a share. Sometimes the price can rise and sometimes it can fall. Long term investment will nullify the fall in price.

Why at all a company sells its shares to the public? A company requires capital or money for its expansion, development, etc. and for this reason, it raises money from the public. The process by which company issues shares is called an Initial Public Offer(IPO). We will read more about IPO under the primary Market.

You would have always heard people talking about the bull market and a bear market. What are they? A bull market is one where the prices of stocks keep rising and a bear market is where the prices keep falling. Where do all this buying and selling happen? NSE(National Stock Exchange) and BSE(Bombay Stock Exchange). These are the two major stock exchanges in India and are regulated by SEBI(Securities and Exchange Board of India). Brokers act as an intermediary between the stock exchange and the investors. So to start investing or tranding, you have to open a demat account and trading account with a broker. You can open Demat account online easily through a simple process. After Linking your bank account with these accounts, you can start your investment journey.

Who kinds of Share Market :

Share market is categorized into two namely:

1.Primary Market

2.Secondary Market

Primary Market :

• A company or government raises money by issuing shares in the primary market by the process of IPO.
• The issue can be either through public or private placement.
• The issue is public when the allotment of shares is made to more than 200 persons: The issue is private when the allotment is made to less than 200 persons.
• The price of a share can be based on a Fixed price or Book building issue; a Fixed price is decided by the issuer and mentioned in the offer document; Book building is where the price of an issue is found out based on the demand from the investors.

Secondary Market :

The Shares bought in the primary market can be sold in the secondary market. The secondary market operates through over the counter(OTC) and exchange-traded market. OTC markets are informal markets wherein two parties agree on a particular transaction to be settled in the future. Exchange-traded markets are highly regulated. Also called auction market wherein all transactions happen via the exchange. 

Why is Share Market important?

Share market plays a vital role in aiding the companies to raise capital for expansion and growth. Through IPOs, companies issue shares to the public and in turn receive funds that are used for various purposes. The company gets listed on the stock exchange after IPO and this provides an opportunity to even a common man to invest in the company. The visibility of the company increases as well.

You can be a trader or investor in the share market. Traders hold stocks for a short period of time whereas investors hold stocks for a longer duration. As per your financial needs, you can choose the investment product.

The investors in the company can use this investment to fulfill their life goals. It’s one of the major platforms for investment as it provides liquidity. For instance, you can buy or sell shares anytime based on the need. That is, financial assets can be converted to cash anytime. It offers ample opportunities for wealth creation.

Capital Growth

You know well that you can earn money by investing in shares. The following are the ways through which your money grows. 

1.Dividends

2.Capital Growth

3. Buyback

Dividends :

1. These are the profits the company earns and it is distributed as cash among the shareholders.

2.It is distributed according to the number of shares you own.

Capital Growth :

Investment in equities/shares leads to capital appreciation. The longer is the duration of investment, the higher the returns. Investment in stocks is associated with risks as well. Your risk appetite is based on your age, dependants, and needs. If you are young and don’t have any dependants, you can invest more in equities to get more yield. But if you have dependants and commitments, you can allocate more portion of the money to bonds and less to equity.

Buyback : 

The company buys its share from the investors by paying a higher value than the market value. It buys back shares when it has a huge cash pile or to consolidate its ownership.