What Is The Share Market?

The share market is a platform where buyers and sellers come together to trade on publicly listed shares during specific hours of the day. People often use the terms share market and stock market interchangeably. However, the key difference between the two lies in the fact that while the former is used to trade only shares, the latter allows you to trade various financial securities such as bonds, derivatives, forex, etc. In this comprehensive guide, we will explore What is the Share Market.

Table of Contents

The share market, commonly known as the stock market, is a financial marketplace where the buying and selling of shares or ownership stakes in publicly listed companies occur. It serves as a platform for investors to trade stocks, representing a claim on the company’s assets and earnings. Share prices fluctuate based on market demand and company performance. Investors engage in the share market to seek capital appreciation, dividend income, or both. It plays a pivotal role in global finance, providing companies with capital for growth and investors with opportunities to build wealth through strategic investment in a diverse range of businesses.

Investors: Individuals, institutions, and even mutual funds that buy and sell shares.

Companies: They issue shares to raise capital for various purposes like expansion and development.

Stock Exchanges: These are platforms where shares are traded. In India, prominent ones include the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Regulatory Authority: In India, SEBI (Securities and Exchange Board of India) oversees and regulates the share market to ensure transparency and fairness.

Stock Indices

Sensex: Represents the performance of the top 30 companies on BSE.

Nifty: Represents the top 50 companies on NSE.

Stock markets can be further classified into two parts: primary markets and secondary markets.

Primary Share Markets : The primary market is the financial market where new securities, such as stocks and bonds, are issued for the first time. It is also known as the “new issue market” or “initial public offering (IPO) market.” In the primary market, securities are issued directly by the issuing company to investors. Companies raise capital by selling newly issued stocks or bonds to the public or to institutional investors.

The primary market facilitates the process of capital formation for companies. It allows them to raise funds for business expansion, research and development, debt repayment, or other corporate needs.

Involves the issuance of new securities.
Capital is raised directly from investors.
The company receives funds from the sale of securities.
The primary market is crucial for initial public offerings (IPOs).

Secondary Share Market : The secondary market is the financial market where existing securities are bought and sold among investors. It is also known as the “aftermarket” or “stock market.” In the secondary market, investors trade securities with each other, and the issuing company is not directly involved. This market includes stock exchanges and over-the-counter (OTC) platforms where buyers and sellers come together to execute trades.

The secondary market provides liquidity to investors by offering a platform to buy and sell previously issued securities. It also helps determine the market price of securities based on supply and demand dynamics.

Involves the trading of existing securities.
Investors buy and sell securities among themselves.
The issuing company does not directly benefit from secondary market transactions.
Prices are determined by market forces such as supply and demand.

Both primary and secondary markets play vital roles in the functioning of the overall financial system. The primary market enables companies to raise capital, while the secondary market provides liquidity and a platform for investors to trade existing securities.

Four categories of financial instruments are traded on the stock exchange. These include:

Shares :A share represents a unit of equity ownership in a company. Shareholders are entitled to any profits that the company may earn in the form of dividends. They are also the bearers of any losses that the company may face.

Bonds :To undertake long-term and profitable projects, a company requires substantial capital. One way to raise capital is to issue bonds to the public. These bonds represent a taken by the company. The bondholders become the creditors of the company and receive timely interest payments in the form of coupons. From the perspective of the bondholders, these bonds act as fixed-income
instruments, where they receive interest on their investment as well as their invested amount at the end of the prescribed period.

Mutual Funds : Mutual funds are professionally managed funds that pool the money of numerous investors and invest the collective capital into various financial securities. You can find mutual funds for a variety of financial instruments like equity, debt, or hybrid funds, to name a few.

Each mutual fund scheme issues units that are of a certain value similar to a share. When you invest in such funds, you become a unit-holder in that mutual fund scheme. When instruments that are part of that mutual fund scheme earn revenue over time, the unit-holder receives that revenue reflected as the net asset value of the fund or in the form of dividend payouts.

Derivatives :A derivative is a security that derives its value from an underlying security. This can have a wide variety such as shares, bonds, currency, commodities, and more! The buyers and sellers of derivatives have opposing expectations of the price of an asset, and hence, enter into a ” betting contract “concerning its future price.

How the Stock Market Works

Working in the stock market involves buying and selling stocks or shares of publicly traded companies. Whether you want to invest for the long term or engage in short-term trading, here s’ a step-by-step guide on how to work in the stock market:

Educate Yourself : Read books on stock market investing, Take online courses or attend seminars, Follow financial news and analysis. Understand the different types of investments, such as stocks, bonds, and mutual funds.

Set Clear Goals : Determine your investment goals:

Are you looking for long-term wealth creation or short-term gains?
What’s your risk tolerance? Are you comfortable with volatile investments?

Create a Budget : Decide how much money you’re willing to invest. Ensure that you can afford to invest without compromising your basic needs and financial stability.

Choose a Broker : You need a brokerage account to buy and sell stocks. Look for a reliable and reputable online broker. Factors to consider include:

Fees and commissions.
Research tools and resources.
User-friendly trading platform.

Open a Brokerage Account : Follow the instructions provided by your chosen broker to open an account with a reputable online broker such as Zerodha, Angle One, upstox, etc.. You need to provide personal and financial information, and some brokers may require a minimum deposit.

Research and Select Investments : Before buying any stocks, research companies and industries:

Analyze a company s’ financial health, earnings, and growth potential.
Consider diversifying your investments across different sectors to reduce risk.
Review historical stock performance and trends.

Place Orders : Using your brokerage platform , you can place orders to buy or sell stocks:

Market Orders: Buy or sell at the current market price.
Limit Orders: Specify the price at which you want to buy or sell.

Consider a Long-Term Strategy : While short-term trading can be profitable, many successful investors focus on a long-term strategy. Holding onto quality stocks for extended periods can provide compounding returns.

Risk Management :Set stop-loss orders to limit potential losses. Diversify your portfolio to spread risk across different assets.

Emotional Discipline :Stock markets can be volatile. Maintain emotional discipline, avoid impulsive decisions, and stick to your investment plan.

Working in the stock market requires patience, knowledge, and discipline. It’s important to start with a clear strategy, stay informed, and be prepared for both gains and losses. Consider consulting with a financial advisor for personalized guidance based on your financial goals and risk tolerance.

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Conclusion

The share market is a place where individuals and institutions trade ownership in company ‘s a vital part of the financial system, offering opportunities for wealth creation and investment. However, it’s crucial to approach share market investments with knowledge and a clear strategy, as it involves both potential rewards and risks. Understanding these basics is a solid foundation for anyone interested in exploring the world of shares.

What is share market simple words?

The share market, also known as the stock market, is a platform where buyers and sellers trade ownership (shares) in publicly listed companies. Investors buy shares with the hope of profiting from the company’s success. Stock prices fluctuate based on supply, demand, and the company’s performance.

Can I invest 500 rupees in share market?

Yes, it is possible to invest 500 rupees in the share market. Some stocks are priced low enough to allow for such small investments. Additionally, you can consider mutual funds or exchange-traded funds (ETFs) that allow you to invest with smaller amounts by pooling funds from multiple investors.

What are types of shares?

There are two main types of shares: common shares and preferred shares. Common shares represent ownership in a company and come with voting rights. Preferred shares provide shareholders with priority in receiving dividends and assets in case of liquidation but usually do not include voting rights.

Can I invest 500 rupees in share market?

Yes, you can invest 500 rupees in the share market. Many brokerage platforms allow small investments, and fractional shares enable you to buy a portion of a stock. Keep in mind that investing always carries risks, so research and consider your financial goals before making any decisions.

How to study share market?

To study the share market, start by understanding basic financial concepts. Learn about company fundamentals, stock valuation, and market trends. Follow financial news, read books on investing, and use online resources. Practice with virtual trading platforms. Consider taking online courses or attending seminars. Stay informed about global economic factors affecting markets. Gradually, gain experience and develop a well-informed investment strategy.

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