by Learning of Share Market for Beginners
What is the Share Market?
Share Markets are where individual and institutional investors come together to buy and sell shares in a public venue. Nowadays these exchanges exist as electronic marketplaces. Share prices are set by supply and demand in the market as buyers and sellers place orders.
What is the purpose of the Share Market?
The primary purpose of a share market is to regulate the exchange of stocks, as well as other financial assets. Such regulation ensures a fair environment for not only investors but also the corporations whose stocks are traded in the market.
How does the Share Market work?
The buyer and seller come together in the secondary market to buy and sell shares. The buyer feels that MR Rahul’s company will do well in foreign countries and hence he is interested in buying shares.
So the buyer logged in to his trading account and placed a buy order for the number of shares.
Now there are millions of search buyers and sellers in the market. So to handle transactions between them we have brokers like ICICI direct, Zerodha, etc.
The trading is provided by the brokers without the trading account you cannot trade. Now the broker passes on the buy order to the exchange where the stock is listed.
So NSE and BSE are the two prominent exchanges in India and it is the exchange that connects the buyer and seller. The moment that the exchange gets a seller it confirms the buy order with the broker.
The broker then completes the transaction of buying and selling.
Now the transaction is completed the seller should get his money and the buyer should get the delivery of shares. So whose responsibility is this “The Clearing House”.
The clearinghouse makes sure the difference between the buyer and the seller happens smoothly.
The Clearing House gives the guarantee to both buyer and seller this transaction will be executed successfully at all costs.
The moment trades get completed the buyer gets the shares in the Demat account from the seller and the seller gets money in his account from the buyer.
By the way, your DEMAT account is with your broker and you get this with your trading account. So that’s how a complete buying and selling transaction is executed.
Example of Share Market
Mr. Rahul owns a cloth shop. After a couple of years, he opened 5 more branches in the state and after 10 years he opened 40 branches across India.
The business is doing exceptionally well now Mr. Rahul wishes to expand further and open multiple branches across the world but for this, he would need more funds.
Let’s say 5000 crores which Mr. Rahul is not having presently. Now to raise this money he has multiple options like approaching an individual financer taking a loan from a bank etc.
But all these options would be required to pay interest on the borrowed money which would eat away his profits and if these branches do not do well then there would be tremendous losses.
So what next, now Mr. Rahul will turn towards a stock market he will approach the public and raise money via IPO that is the initial public offering.
Rahul company’s issue shares, that is a partnership in the company to people and if people feel that the company is likely to do well then they can become partners in the company but buying those shares at a stipulated price.
In that way, Mr. Rahul raises interest-free money and his risk also gets distributed amongst people. The IPO will get launched in the primary market and the company will get listed in the Secondary market.
On the stock exchange where the shares will get traded this combination of the primary and secondary market is called the share market.
What benefit do people derive by buying shares of Mr. Rahul’s company?
When the shares of the company get listed the trading starts and when the share price goes up people will make a profit by selling those shares at higher prices that’s it.
This is a Win-Win deal for people like Mr. Rahul and also the country which benefits indirectly and yes to make sure that these transactions happen clearly without any cheating.
SEBI, which is the Securities and Exchange Board of India, acts as a regulatory body. For example, we abundance Stock Advisors are SEBI registered research analyst group license to provide stock recommendations.
If this service is provided without registration from SEBI then it is a deal illegal. SEBI has any kind of rules and regulations which ensure that the investor interest is safeguarded and you can safely invest in the stock market.
How Stock Market Price move and how do the buyer and seller make money in this process?
The buyer and seller are tracking the share price of Mr. Rahul’s company and There comes a piece of news at 10 o’clock that in one month the American store of Mr. Rahul’s company has made a profit of 100%.
This is big positive news at 10 o’clock the share price was 3000 but now as the seller wants 3100 per share but fortunately is ready to buy the shares at 3100 because he is bullish on Mr. Rahul’s company and feels the shares is indeed worth 3100 rupees.
So Now at 1 minute past ten the share is trading at 3100 and now another seller wants 3200 and another buyer is ready to buy the shares at this price and 10 past three the share is coding at 3200 this continues and just 3 minutes share price Rises by 10%.
The stock is rising because the demand is rising. The buyers are feeling that the company will do well in the future and sellers are selling because they think that the company might not do well in the future.
So technically it’s just a different perspective which the buyer and the seller have about the company which is indeed driving the share price. The buyers are always bullish and sellers are always bearish and if there are more sellers its price will come down. That’s how the prices of shares go up and down as simple as that.
Different types of players investing in the stock markets
There are 2 types of categories in the Stock Market are as follows:-
- Trading Category
- Investor Category
Trading Category:-
It also consists of subcategories. Now we as retail traders should fall in which category to make money are as follows:-
- Intraday Trader:- This guy buys shares in the morning and sells them before the market closes. The whole day he buys and sells many shares.
- Scalper:- This is a person who buys shares in bulk in huge quantities and sells them in moments when he sees very little profit.
- Swing Trader:- This guy buys shares, waits for a little longer a day or two, and then sells the shares.
Now all these players fall in the trading category and most of the time they are in tremendous losses because trades rarely make money in the stock market today they make 100 rupees and tomorrow they lose 200. That’s the game that goes on and on.
Investor Category
It also consists of subcategories. Now we as retail investors should fall in which category to make money are as follows:-
- Growth Investor
This person buys shares of those companies which in the future likely to show phenomenal growth. This guy holds the shares for a longer duration 1 year 2 years 3 years with a lot of patience and then when the share prices have gone up significantly he sells them.
- Value Investor
This person buys the shares of companies that are already doing good and profitable but for some reason, their share price is very low today. This guy too shows a lot of patience and holds the shares for a longer period 6 months 1 year 2 years and when the share price goes up significantly he sells them.
Now important to all people, glance and you must also get this clear that the stock market should be treated as an investment platform. Do not make it a trading platform just to repeat traders who do not make money in the stock markets.
You can try trading for yourself for six months to get a feel of what you are saying. You need to fall in the investor category to make money in the stock markets just like you invest your money in Real Estate & you never expect the investment to double the month right.
You know it’s a clean investment and will give your profit after a decent period. On similar lines in share markets, you have to hold onto your shares for a Decent period. you have to select the right companies to invest in which will give you huge profit.
If you do trading in stock markets you will lose your money. You will get lost and Confused in the herd of buyers and sellers. You will never be able to decide correctly which stocks to buy and sell.
Fear and Greed will start overpowering you and eventually, you will end up losing your capital. so try and become an investor in the stock market.
Some fruitful Thought by Warren Buffet
“If you don’t find a way to make money in your sleep you will work until you die” that’s a statement from “Warren Buffett”.
How true is this if your money doesn’t start working for you then you have to slog your whole life? The only mantra to wealth creation is that your money should work harder than you even while you sleep and that will be possible only when you invest right.
Don’t wait for a big amount to accumulate, start with whatever you have. It’s very good to experiment with smaller amounts. You will get to learn a lot.
Start small but make a start history has proven that everyone accumulates wealth. He starts small and remembers you are a tiger here so let the Roar get louder and louder all the shackles.
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