Stock Market is a place where shares of companies which are listed in the stock Exchange of the country are bought or sold. Stock market is also known as equity market or share market. Mostly the people who are new to the field of investing or trading ask this question “What is Stock Market”. Stock market consists of stock exchanges where buyers and sellers of shares of publicly held companies met. In India there are mainly two exchanges, NSE and BSE.
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The words “stock market” and “stock exchange” are used interchangeably. So, please don’t confuse between them. Traders in the stock market buy or sell shares. The interesting thing is that they do not buy shares directly from the company or sell directly to the company. Instead, they buy or sell from the existing shareholders of the company. So, in the process of buying or selling the shareholders of the shares change hands.
Stock Market Basics is the first point in Understanding “what is stock market?”
Stock market is a market place where people buy and sell stocks. The stocks usually represents ownership shares in a companies. Companies need funds to run their businesses. They issue stocks to general public to raise capital to run their business. Thus stocks are usually ownership of companies. Thus the people who bought stocks of a company they generally own a share in the company. Each share represents a tiny piece of ownership in the company.
How the Stock Market Works?
To know exactly what is stock market we need to know how it works. Stock market is operated by stock exchanges. In India there are two major stock exchanges NSE(National Stock Exchange) and BSE(Bombay Stock Exchange). People buy and sell shares and derivatives through these stock exchanges. People buy stocks of a company in the perspective to gain wealth. They predict by the valuation of the comapny or by public sentiment whether the stock will go up or down. They bet their money in the assumption that the stock will go up and they will have capital gain when they sell stock at the higher price. If they incur loss they sell the stocks. The stock market is generally dominated by two main factors, these are greed and fear.
There are generally two types of markets: Primary Market and Secondary Market. In the primary market companies issue and sells their shares to the general public for the first time through the IPO(Initial Public Offer). Though IPO, the companies raise capital from the public.
Thus the company is divided into several shares and sells some of these shares to the public at a price per share. To buy and sell shares we need a marketplace and this marketplace is provided by the Stock Exchanges. A listed company may also offer more share through FPO(Follow on Public Offer), through right issue or may also delist its shares or buyback.
After the Initial Public Offer the stock exchanges serves as a trading platform where stocks of the companies are bought and sold. This is also known as secondary market. The primary market is the one where IPO is issued and stocks alloted to the general public first time. For every trade the stock exchange earns fee which is neede for its operation.
What is Significance of Stock Market?
The stock market plays a crucial role in the various aspects of the economy and individual lives. It provides a platform for companies to raise capital for expansion and innovation. Stock market offers ownership to the general public through shares of the listed companies. Through the stock market the savings of the individual persons are used in the growth of the economy and in return they get capital appreciation when the valuation of the stock price surge. Individuals can also buy bonds and right issues. Stock market provides enhanced liquidity to the market participants to buy and sell shares quickly without any hassle. Stock market is a barometer of the economic growth. The performance of stock market represents sentiments of investors and economic trend, indicating potential risks or opportunities.
Why Invest in the Share Market?
People buy shares in the company in the expectation to grow their money over a period of time. Many people still struggling to know “what is stock market“. Some people fear to invest in the stock market because they don’t have the basic knowledge of investing. Once they acquire the basic knowledge of investing the fear goes away. They can choose stocks according to their fundamentals or company’s valuation. The money in the stocks grow even more faster than other assets like Gold or Real Estate. We can beat inflation by investing in stocks, which could be a better option in today’s world where prices of everyday expenses are rising exponentially. Stock market is the way to beat inflation but with right knowledge. If you don’t know anything about investing then don’t invest like this. You can consult financial advisors in your city to help you with that. The main point before starting investing is don’t invest more than 20% of your capital if you are starting from scratch. Always keep a margin of safety because stock market can be very volatile at times.
Factor Influencing Stock Market Prices
There are various factors which affect prices of shares. These factors include quaterly results of stocks, financial news, any major global event. Prices are also unpredictible on event day’s like RBI monetary policy. The monetary policy announcement timing is very crucial. We may expect very volatile movement in banking stocks or major indices during announcement. Every major global event has its effect on stock prices. But the beautiful thing is that stock market factors all the newly information in its price very quickly. Supply and demand are the main factors affecting stock prices. Every factor influence the supply and demand and in return the stock prices moves. After reading the above information one can surely get the answer of his question that what is stock market exactly.
Important Stock Market Terms
| Term | Definition | Example |
|---|---|---|
| Stock | A share of ownership in a company | Owning 10 shares of Reliance gives you a small ownership stake in Reliance Company. |
| Share Price | The current price of one share of a company’s stock | As of February 10, 2024, Share price of Reliance is Rs 2921.50. |
| Exchange | A marketplace where stocks are traded. | There are two major stock exchanges in India namely NSE & BSE. The BSE(Bombay Stoch Exchange) is the first stock exchange in India. |
| Broker | An individual or firm that helps you buy and sell stocks | Zerodha and Upstox are two major discount sock brokers in India. |
| Portfolio | A collection of your various investments like stocks and bonds. | Your portfolio could include stocks, bonds, mutual funds, and other assets. |
| Dividend | A payment made by a company to its shareholders from its profits | Companies like ITC & Eicher Motors distribute dividends to their shareholders. |
| Market Capitalization | The total value of all a company’s outstanding shares | The market capitalization of Reliance Industries Ltd. is 19.75 trillion INR. |
| IPO(Initial Public Offering) | The first time a company sells its shares to the public. | Medi Assist Healthcare Services issued its IPO in January 21, 2024. |
| SEBI(Security and Exchange Board of India) | The Government body that regulates the stock market. | Protects investors from fraud and ensures market fairness. |
| Financial Adivisor | A professional who helps you create and manage your investment portfolio. | Offers personalized advice based on your goals and risk tolerance. |
If you are intersting in after market analysis you can read here.
Conclusion
So, we have read almost everything about stock market. Remember that knowledge is power. To invest in stock market we need to keep our eyes open to what is happening in the world and in the companies in which we are invested or we want to invest. Various circulars came out from stock exchanges from time to time. Keep you eyes on those as well. Stock market is a powerful tool for building wealth over time. Always do your research before investing in any stock. Don’t invest all your money in one or two stocks. Diversify your money in various stocks and sectors. Start small when you start investing and then gradually increase investment according you your capacity. Please consult your financial advisor before making any investment decision.