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What is a stock market? How it works

What is the market for shares or stock market? Why is it in existence? How does it operate? What are its benefits and drawbacks? as well as how to put money into it. In this article, let’s learn more about share markets.

Come on, let’s discuss the stock market or Share Market

The terms “stock market,” “share market,” and “equity market” have the same meaning. These are markets where stock in a firm can be purchased or sold. Purchasing shares of a business entails acquiring a portion of its ownership. In other words, you start to own a portion of that business. Should that business turn a profit, you would also receive a portion of that profit. Should the business suffer a loss, you would also be responsible for a portion of that loss. To give you a small-scale example of this, let’s say you need to create a start-up. Even with 10,000 rupees, it is insufficient. You then approach your friend and propose a 50/50 partnership in exchange for him investing an additional 10,000 rupees. That means that you would own half of whatever future profits your company makes. Your friend would own half of it. In this instance, you have granted your friend 50% of the company’s shares.

On a larger scale, the stock market experiences the same phenomena. The sole distinction is that, rather than going to your friend, you invite everyone on the planet to purchase stock in your business. The history of share markets began approximately 400 years ago. A Dutch East India company existed in the 1600s, akin to the British East India company. The Dutch East India Company still exists today in the Netherlands. Back then, a great deal of ship-based exploration was done by individuals. The firms used to send their ships to discover new regions and trade with distant places because the full global map had not yet been known.

In the past, the voyage took place over thousands of kilometers on a ship. For this, a substantial sum of money was needed. Such sums of money were not personally owned by anyone in those days. They therefore extended a public invitation to investors to fund their ships. Back then, these ships would sail great distances to visit foreign countries and return bearing treasures. They were finally guaranteed a portion of these riches or money. But this was a really dangerous situation. Because over half of the ships during that time failed to return; they were either lost, broke down, or robbed. The fact that anything could happen to them made investors realize how hazardous this venture was. Thus, rather than purchasing one ship, they opted to purchase five or six of them. One ship was utilized to solicit financial contributions from several investors so that at least one of them had the possibility of returning. As a result, there were open bids for the ships that were docked, creating a sort of share market. Docks are the locations where ships eventually disembark. This method worked because the general public helped ease the corporations’ financial hardships. Also, the average person had the opportunity to increase their income.

The wealth that the English and Dutch East India companies amassed during that period must have been mentioned in history textbooks. Every nation has a stock exchange these days, and they are all heavily reliant on the stock market. The stock exchange is the location and structure where individuals purchase and sell company shares.

There are two categories of markets: primary markets and secondary markets.

The corporations sell their shares in primary markets. The firms determine the precise value of their shares. Despite the fact that this also has certain rules, Because a lot of their operations depend on demand, corporations are limited in how much they can do. What price range are individuals willing to accept for shares of the company? The company sells one lakh of its shares at a price of one rupee per share if its worth is one lakh rupees. The corporation would undoubtedly be able to sell its shares for a higher price if there is a large demand for them and many people wish to purchase them.

These days, businesses choose a price range. There are two prices: the lowest and the highest. They choose to sell within that range of shares. It is important to remember that each share of the corporation is worth the same amount. The corporation will determine how many of its shares it wants to issue. When firms sell their shares in the stock market, they never sell all of them. For example, if the company’s entire value is one lakh, it may make one lakh shares of one rupee each, or two lakh shares of fifty pesos each. To maintain control over his ability to make decisions, the owner always holds the majority of the shares. All of the buyers of the shares would become the company’s owners if you sold every share.

Now that they are all proprietors, they are all able to make decisions about that business. Decisions about the corporation would be made by the person holding more than 50% of the shares. Consequently, the company’s founders would rather hold onto more than 50% of the shares. For instance, Mark Zuckerberg owns 60% of Facebook shares. Shares of the corporation may be sold by those who have purchased them to other individuals.  This is known as the secondary market, where individuals trade shares and purchase and sell them to each other.

The corporations determine the prices of their shares in the primary market. The secondary market pricing of the companies’ shares is outside of their control. The supply and demand for shares affect how much a share is worth. Therefore, supply and demand determine how much a share costs. Nearly all large nations have their own stock exchange. India has two well-known stock exchanges. One is the Bombay Stock Exchange, where there are about 5,400 companies that are registered. The National Stock Exchange, which has 1700 registered businesses, is the alternative. With so many nations listed on the stock exchange, how can we interpret this if we want to see whether the prices of the companies’ shares are generally rising or falling?

Sensex and Nifty are two metrics that have been used to measure this. Sensex displays the average trend of the Bombay Stock Exchange’s top thirty firms, averaging out whether the companies’ shares are rising or falling. The sensitivity index, or Sensex in its full version, shows the same The Sensex has crossed 40,000 points in value. By itself, the number doesn’t mean much. This number’s significance can only be appreciated by contrasting it with previous figures. Considering that this number was chosen at random, they initially determined that the thirty companies’ shares would be valued as follows: Thus, after adding up all the numbers, we declare that 500 Thus, throughout the past 50 years, the sensex has been climbing gradually and has crossed the 71,000 level. This illustrates the extent to which these 30 companies’ share prices have increased over the previous 50 years. Another such index is called NIFTY, or National Plus Fifty.

The Nifty index displays changes in the share prices of the top 50 businesses listed on the National Stock Exchange. A corporation engages in “public listing” when it wishes to sell its shares on the stock exchange. A company’s first sale of shares is known as an IPO, or initial public offering, which is the act of first making the shares available to the general public. It was much simpler to complete this when the East India Company was in operation. Anyone could offer their company’s shares for sale to the general public, but as it should be, the process is now somewhat drawn out and complex. Because, really, consider how simple it is to con people. Anyone could create a phony firm and list it on the stock exchange, then inflate the company’s worth and accomplishments. People would invest recklessly in his company if they were led to believe falsehoods by them. The ability to steal the money afterwards allowed him to do so, making it quite simple to swindle someone. India has experienced numerous frauds similar to these throughout its history. For instance, the Satyam scam and the Harshad Mehta scandal both involved deceiving the public and listing themselves on a stock exchange. Getting the money and running off with it As a result, the stock exchanges understood they needed to strengthen impenetrable systems as soon as these scams occurred. Because of this, the resolutions and regulations were strengthened, and as a result, today’s regulations are exceedingly intricate.

A regulating organization called SEBI, or the Security and Exchange Board of India, investigates matters such as which firms ought to be listed on the stock exchange and whether or not this is being done correctly. To achieve this (i.e., get listed), you would need to comply with SEBI regulations. They have extremely rigid rules, for instance. Numerous checks and balances must be in place for your company’s accounting. Your company’s accounting has to have been examined by at least two auditors. This entire procedure could take up to three years. If a firm wants to be publicly listed, more than 50 shareholders must be present at the outset. If, however, there is no market for the shares when they are sold, then your company may be taken from the stock market list by SEBI.

How can one invest in the financial markets these days?

Back when the East India Company operated, one could visit the docks where the ships were leaving to participate in stock exchanges and bid on and acquire stocks. Before the internet, this could only be done in person at the Bombay Stock Exchange building. But now that you have the internet, all you really need are three items: There are three types of accounts: trade, bank, and DEMAT. a bank account since you would require funds. A trading account that enables you to trade and make investments in businesses A DEMAT account to hold your digitally purchased stocks These days, the majority of banks offer a 3-in-1 account, which combines all three accounts into one.

Learn about – Forex Treading

Retail investors, or regular folks who wish to invest in the stock market, would be people like us. A broker is usually necessary for retail investors. A broker is a person who connects the vendor and the buyer. Our brokers might be our banks, a platform, or an app from a third party. A broker keeps a portion of the money we invest in the stock market through them as his commission. It’s known as the “brokerage rate.” Typically, banks impose a brokerage fee of about one percent. Yet 1% seems a bit excessive. That is not the appropriate amount. If you were to investigate closely, you would find platforms that levy a brokerage fee of approximately 0.1% or 0.05%.

This brokerage cost is a drawback for individuals who wish to engage in extensive stock trading. A significant amount of money would be diverted as brokerage fees if many equities were purchased and sold in a single day. However, since you would only have to pay the brokerage fee once if you planned to invest for the long term, a high rate wouldn’t really matter. Consequently, trading and investing are two distinct things. Investing entails placing money in the stock market and allowing it to remain there for a while. Trading entails making fast deposits at many locations and withdrawing from others. All of this occurs quickly, one after the other. Actually, trading shares is a full-time job. Many people in our nation work as traders, extracting money from one share and transferring it to another, all while making money. They do this repeatedly and profit from their transactions.

One crucial query that comes up is: Is it wise to make investments in the stock market?

Many people liken it to gambling due to the high level of risk involved. It’s accurate to state that, in my opinion, as this is a form of gambling. In a sense, this is similar to gambling if you don’t know the nature of the business, how well it performs, its parameters, its financial record, or its history and accounting data. Therefore, you would be blind to the company’s potential performance in the future. All you do is listen to others tell you that the firm is doing well and that you should invest in it on the stock exchange, so you do just that. This is quite unsafe, so you should never do it. Furthermore, it goes without saying that there are some that perform this work on a daily basis, such as traders, who are professionals in this industry and possess a greater understanding of the stock market. They would undoubtedly perform better than the others because they understand how everything operates. Therefore, I believe that you should always rely on the experts and never make direct investments in the stock market.

Team Trending Khazana
Team Trending Khazana
With a passion for unraveling the latest trends and a commitment to delivering insightful content, Team Trending Khazana has been a prominent force in the blogging world for the past five years. Comprising a group of dedicated individuals, this team has consistently curated content that resonates with a diverse audience.

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