Stock market Basics.

 

You would have heard that Stock markets is a type of Gambling but it’s not true if you study it properly. and any intention of earning a great profit with less time is a type of gamble but if you understand it properly you would find that it is one of the greatest medium of earning great returns in long term as compared to any other options. So let’s understand stock markets.

Wouldn't you love to be a business owner without ever having to show up at work? Imagine if you could sit back, watch your company grow, and collect the dividend checks as the money rolls in! This situation might sound like a pipe dream, but it's closer to reality than you might think.

As you've probably guessed, we're talking about owning stocks. This fabulous category of financial instruments is, without a doubt, one of the greatest tools ever invented for building wealth. Stocks are a part of nearly any investment portfolio. When you start on your road to financial freedom, you need to have a solid understanding of stocks and how they trade on the stock market.

Over the last few decades, the average person's interest in the stock market has grown exponentially. What was once a toy of the rich has now turned into the vehicle of choice for growing wealth. This demand coupled with advances in technology has opened up the markets that with an mobile app anyone can buy / sell stocks so that nowadays nearly anybody can own stocks.

Despite their Popularity, most people don’t understand stock market fully (nor anyone can understand it fully) but should know some Technical and market terms to understand basics os stock market. So let’s start learning basics of stock market:

What are Stock Market?📊

So basically, there is a primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporate to raise resources to meet their requirements of investment. This process of issuing shares in primary market is called IPO (Initial Public Offering). After IPO this stocks trade in the secondary market which we call as stock market.

What Are Stocks?

 The Definition of a Stock Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.

Why does a company issue stock? Why would the founders share the profits with thousands of people when they could keep profits to themselves? The reason is that at some point every company needs to raise money. To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock. A company can borrow by taking a loan from a bank or by issuing bonds. Both methods fit under the umbrella of debt financing. On the other hand, issuing stock is called equity financing. Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them.

How Stocks Trade?😕

Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. You've probably seen pictures of a trading floor, in which traders are wildly throwing their arms up, waving, yelling, and signaling to each other. The other type of exchange is virtual, composed of a network of computers where trades are made electronically but Thanks to god that in India we have a totally computerized network for trading stocks and even opening an account online with utmost safety & precautions.

Now if we talk about stocks trading in India we should know that there are mainly 2 stock exchanges in India 1. NSE (National stock exchange) started in year 1992, and the oldest 2. BSE (Bombay stock exchange) started in year 1875 and recognized by government of India in 1957.

The term Sensex associated with BSE is a benchmark index of BSE. It is comprised of 30 largest and mostly actively-traded stocks on the BSE, providing a gauge of India’s Economy. On the other hand Nifty50 associated with NSE is also a benchmark index of NSE which represents the weighted average of 50 of the largest Indian companies listed on NSE.

Risk assessed😮:

 It must be emphasized that there are no guarantees when it comes to individual stocks. Some companies pay out attractive dividends, but many others do not. Without dividends, an investor can make money on a stock only through its appreciation in the open market. On the downside, any stock may go bankrupt, in which case your investment is worth nothing. Although risk might sound all negative, there is also a bright side. Taking on greater risk demands a greater return on your investment. This is the reason why stocks have historically outperformed other investments such as bonds or savings accounts. Over the long term (At least 1 year), an investment in stocks has historically had an average min return of around 10-12%.

Conclusion:

· Stock means ownership. As an owner, you have a claim on the assets and earnings of a company as well as voting rights with your shares.

 · Stock is equity, bonds are debt. Bondholders are guaranteed a return on their investment and have a higher claim than shareholders. This is generally why stocks are considered riskier investments and require a higher rate of return.

 · You can lose all of your investment with stocks. The flip-side of this is you can make a lot of money if you invest in the right company.

For trading in a stock market you need to open an Demat account in any bank or brokerage firms.

This video might help you to understand demat account more,

So friends hope you would have like it, please follow, share and don't forget to comment your reviews.