What is Share Market 2024| How to Trade In Share market| What is Stock Market| How to Buy and Sale Shares in Stock Market – Share Market A market where shares are publicly issued and they are bought and sold. The answer to ‘What is Stock Market’ is very similar to that of Share Market. The key difference between share market and stock market is that the share market only allows trading of shares. The same stock market allows you to trade in financial instruments such as derivatives, bonds, mutual funds, as well as shares of listed companies.
Share Market provides a platform of trading facilities that can be used by companies to trade shares in the share market. In the stock exchange only those shares can be bought and sold which are listed on it. Hence, buyers and sellers meet in the stock market. The major stock exchanges of India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
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Types of Share Markets
Now that we understand the meaning of stock market, one of the major aspects of stock market basics is that one can trade on one of the two market segments. In other words, there are two types of stock market in India. These are primary market and secondary market.
Primary Share Market
A primary stock market is a place where a company is first registered with the goal of raising funds and issues a certain amount of shares. The goal of getting publicly listed on a primary stock exchange is to raise funds. This is where a company gets registered to issue a certain amount of shares and raise funds. If the company decides to sell its shares for the first time, it is known as an initial public offering.
Secondary Share Market
Once the company’s new securities are sold in the primary market, they are traded in the secondary stock market. In the secondary market, investors get an opportunity to exit their investments and sell their shares. Transactions on the secondary market mostly involve trades where one investor chooses to buy shares from a different investor at the current market price.
One investor will buy shares from the other in the secondary market, at whatever price both parties agree to set or based on the prevailing market price. Investors usually put these transactions through a broker or other intermediary who can facilitate the process. Brokers provide these trading opportunities in various plans.
What We Can Buy or Sale in Share Market
We cannot discuss the basics of the stock market without addressing the major financial instruments that are traded. There are four categories of financial instruments traded on the stock exchange. They are shares, bonds, derivatives and mutual funds. They are as follows:
A share is a unit denoting equity ownership in a corporation that exists as a financial asset that provides for an equitable distribution of any profits earned. So, when you buy shares, you buy a stake in the company whose shares you have bought. This means that if the company becomes profitable over time, shareholders are rewarded with dividends. Traders often choose to sell shares at a higher price than they bought them.
A company needs money so that they can start projects. They pay dividends to their investors from the revenue earned on their projects. One way to raise capital for operations and other company processes is through bonds. When a company chooses to borrow money from a bank, they take out a loan which they repay through periodic interest payments. Similarly, when a company chooses to borrow money from various investors, it is known as a bond, which is also repaid through timely interest payments. Take the following example as an explanation of how a bond works.
Imagine your goal is to start a project that will start making money in two years’ time. To start this project, you will need some initial amount to get started. Suppose you obtain the required amount of money as a loan from a friend and write a loan receipt stating that you owe him ₹1 lakh, which you repay over five years with an interest rate of 5% per annum. Will pay off in years. Let’s say your friend now has this receipt. This means that they have just bought a bond by lending money to your company. Since you have promised to pay the principal amount at 5% interest, you do so and finally end up paying your principal by the end of the fifth year.
One of the major financial instruments of stock market fundamentals is mutual fund investment. Mutual funds are investments that allow you to invest indirectly in the stock market. You can find mutual funds for various financial instruments like equity, debt, or hybrid funds to name a few. Mutual funds work by pooling money from all the investors who fund them. This total amount is then invested in financial instruments. Mutual funds are professionally managed by a fund manager.
Every mutual fund scheme issues units of a fixed value equal to one share. When you invest in such a fund, you become a unit holder in that mutual fund scheme. When the instruments that are part of that mutual fund scheme earn revenue over time, the unit-holder receives that revenue which is reflected in the net asset value of the fund or in the form of dividend payments.
The market value of the shares listed in the stock exchange continues to fluctuate. It is difficult to value a stock at a particular price. This is where derivatives enter the picture. Derivatives are instruments that allow you to trade at a price you decide today. Simply put, you enter into an agreement where you choose to buy or sell shares or any other instrument at a certain fixed price.
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