WHAT IS STOCK MARKET ??

WHAT IS STOCK MARKET ?

Stock Market Basics

All companies need money to run their business. Sometimes the profit acquired from selling goods or services is not sufficient to meet the working capital requirements. And so, companies invite normal people like you and me to put some money into their company so that they can run it efficiently and in return, investors get a share of whatever profit they make.

Understanding this is the first step towards understanding stock market basics. Let’s learn about this in detail.

What are Stocks?

Stocks are simply an investment method to build wealth. When you invest in the stock of a company, it means you own a share in the company that issued the stock.

Stock investment is a way to invest in some of the most successful companies.

Also, there are different types of stocks available in the market to invest/trade-in. These stocks are categorised based on the following criteria:

• Market capitalization

• Ownership

• Fundamentals

• Price volatility

• Profit sharing

• Economic trends

What is Share Market?

People often wonder what is stock market and share market, and often use it interchangeably.

A stock market is similar to a share market. A share market is where the shares are issued or traded in. The primary difference between the two is that the stock market lets an individual trade in bonds, mutual funds, derivatives, shares of a company, etc. On the other hand, a share market only allows the trading of shares.

TYPE OF TRADING

How Does the Stock Market Work?

Companies raise money on the stock market by selling ownership stakes to investors. These equity stakes are known as shares of stock.

By listing shares for sale on the stock exchanges that make up the stock market, companies get access to the capital they need to operate and expand their businesses without having to take on debt. Investors benefit by exchanging their money for shares on the stock market.

As companies put that money to grow and expand their businesses, it profits the investors as their shares of stock become more valuable over time, leading to capital gains. In addition, companies pay dividends to their shareholders as their profits grow.

The performances of individual stocks vary widely over time but taken as a whole, the stock market has historically rewarded investors with average annual returns of around 10%, making it one of the most reliable ways of growing your money.

Understanding the Stock Market Basics - Important Terms

Here is a list of commonly used terms when talking about the stock market.

Annual Report

An annual report is a yearly report that every company prepares to impress the shareholders of their company. The annual report consists of lots of information about a company, from cash flow to management strategy.

Several people read the annual report to look at the company’s solvency and judge their financial position.

Arbitrage

Arbitrage means purchasing something like foreign money from one place and selling it to another place where the price of the foreign money is higher than buying place.

For example: if stock is trading out $20 from one Market and $21 on other markets, the trader must buy shares at $20 from one Market and sell them for $21 on the different Market, getting the difference amount between both the markets price.

Averaging Down

Averaging down means the investor buys more stock when the price of a particular stock goes down. This decreases the average purchase price of your specific stock.

Several investors use this strategy if they feel that consensus about a specific company is wrong, so they expect the stock price to jump back and earn profit.

Bear Market

It is a market where investors talk about the stock market performing in a downward trend, or it is a certain period where the prices of multiple stocks are falling.

Broker

A broker is a person who buys and sells investment on your behalf and, in exchange, takes a certain amount of money called commission or fee.

Dividend

A dividend means when the company earns profit, a particular portion of their earnings is distributed to shareholders or the people who own the company stock on a quarterly or annual basis. Not every company pays dividends, and if you’re after penny stocks, you’ll likely not get any dividends.

Sensex

Sensex is a figure that indicates all the relative share prices that are listed on the Bombay Stock Exchange.

Nifty

The Nifty 50 Index, called the National Stock Exchange of India, is the primary and brad based stock market index for the equity market of India. The Nifty 50 consists of 50 Indian company stocks in 12 different sectors, and it is one out of two stock indices that are mainly used in the stock market.

Quote

The stock’s latest trading prices contain information that is given in a quote. Sometimes, the quote is delayed by 20 minutes unless you’re an actual stockbroker working in an existing trading platform.

Share Market

A share market is a market in which shares of a particular company are purchased and sold. The stock market is a definite example of a share market.

Bull Market

It is a market where investors talk about the stock market performing in an upward trend, or it is a certain period where the prices of multiple stocks are increasing.

Bid Price

A bid price is nothing but the amount that you desire to pay for a particular share.

Ask Price

Ask price is a specific price at which you are looking to sell a share.

Order

Order means the purpose of buying and selling shares in a given range of price. For example, you have placed an order to buy 200 shares from company A, at a maximum price of Rs 50 per share.

Trading Volume

Trading volume means the number of shares that are traded on a particular day.

Market Capitalization

It simply means the value of a company according to the stock market. That is the current value of all the shares of a company put together.

Intra-Day

Trading Intraday trading means buying and selling your desired stocks on the same day so that before trading hours get over, all your trading positions will be closed within the same day.

Market Order

A market order is an order to buy and sell shares at the market price. Several investors don’t go with this Order because the trade price in the market order remains volatile.

Day Order

A day order is an order that remains good till the end of the trading day. If the Order does not perform by the time the market closes, the Order will be canceled.

Limit Order

A limit order is to buy shares below a fixed price and sell shares above a fixed price. It is advisable to use a limit order to trade shares.

Portfolio

The portfolio is a collection of all the investments that an investor has made right from purchasing a share for the first time.

Liquidity

Liquidity means how stocks can be sold off quickly. Shares that get sold consist of high trade volumes quickly and are called highly liquid.

IPO

IPO means a private company is turning into a public company by issuing its shares to the public for the first time. In the case of an IPO, the investor can buy the shares directly from the company.

Secondary Sharing

It is another offering used to sell more stocks and gain more money from the public.

Going Long

Betting on the price of a stock that will increase so that you can buy at a low price and sell at a high price.

Conclusion

As someone new to the stock market, mastering these basic stock market terminology is crucial to building a solid foundation. By understanding these concepts, you can make more informed decisions, manage risk effectively and navigate the various complexities of the stock market with confidence.