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Understand the investment in stock market for Beginners

When one encounters news channels or reads the newspaper’s economic section, it becomes almost inevitable to skip hearing about the share market or how the value within these markets has increased or decreased. But how is one to make sense of these digits without any prior knowledge of the field or without knowing how to read the /share market/equity market. 

Word of mouth about how risky the share market precedes every information regarding this platform makes it all the more interesting to know about it since it is a human tendency to do something opposite of safe. So, what is it that makes this market so unique? Here you can find the Table of Contents.

1. What is ‘Stock Market’ ?
2. What is ‘Stock Exchange’?
3. How many shares are possible?
4. How do companies sell their shares?
5. How can you buy shares or do investment in Stock Market?
6. What is investing and trading in the market?
7. Is the stock market the same as ‘Gambling’?
8. To Conclude

What is ‘Stock Market’?

The stock market is an exchange platform where companies sell or purchase some proposition of the Company publicly or privately. To make this more simple, an example would benefit your understanding. you can read the how stock market works here.

If you wish to pursue a startup business with 1 lakh rupees and make your startup successful, you require more than the money you currently possess. You do not want to take loans from the banks because of their higher interest rate or borrow some money from someone else. Then what is the other option? An alternative route can be to ask your friend to be the partner in your startup and give you another 1 lakh rupees to make your startup successful. Once your friend is your startup’s partner, you both will get the 50% profits, or in some conditions, you both have to bear the loss of 50%.

Big companies like Facebook, Amazon, TCS, etc. do the same when they require money or raise some new fresh capital. They sell their Company’s share through the stock exchange, a much more idealized route, to increase the fresh capital and the person who purchases the Company’s share becomes the shareholder of the Company. The primary reason to spend in this market is to gain extra money than what is being spent.

What is ‘Stock Exchange’?

The stock exchange is a platform where companies get listed to make their companies share publicly available. In India, BSE (Bombay Stock Exchange), in which nearly 5400 companies are already registered, and NSE(National Stock Exchange), in which about 1700 companies are already registered, are the two platforms in which every Company has to get listed before making their shares publicly.

Once the Company gets listed on the stock exchange and now the Company can sell their shares, but questions arise that how many shares a company can make publicly available? 

How many shares are possible?

A company’s founder keeps more than 50% of the company shares to keep his decision-making power in his hand. In a company, if a shareholder has more than 50% of the Company’s shares, then he can make the decisions within the Company. To keep the decision-making power, the Company’s founders save more than 50% of the Company’s shares, not making more than 50% available to the investors on the platform of the share market. 

Facebook founder Mark Zuckerberg held 60% of the Company’s shares in 2019 to keep his control and decision-making power.

How do companies sell their shares?

When a company wants to sell its shares through the stock exchange, it’s called public listing of the Company; it means that the Company is offering its shares to the public, but when a company sells its shares for the first time, it’s called IPO (Initial Public Offering). 

Before getting listed your Company on BSE and NSE platforms company have to the full fill the SEBI’s (Stock Exchange Board of India) DRHP (Draft Red Herring Prospectus; which includes the Company’s completely biodata like balance sheet checked by two auditors, past performance, founder’s details, shareholder details, minimum 50 shareholders in the Company, etc.) criteria and SEBI also upload your Company’s details online on their website to keep the transparency between the investors and the Company. When SEBI completes their investigation and analysis of all the details given by the Company and once the SEBI finds all the details correct then your Company gets listed on the stock exchange platforms. 

Once your Company gets listed on the stock exchange your Company can offer shares to the investors. If the demands of your shares will not be there in the market then the stock exchange can also remove your Company from the list.

How can you buy shares or do investment in Stock Market?

Before the internet, investors used to go to BSE to purchase the Company’s shares, which usually used to be hectic because of heavy paperwork and the amount of time that would be spent on this task, but thanks to the internet, now you do not have to go anywhere. Everything can be done online; all you need are three things; Bank Account, Trading Account, and Demat Account. You can Read Upstox Review

These days, many banks offer these three benefits in one place, and ordinary individuals who wish to invest in the markets are called retail investors. Retail investors need a broker to purchase shares; a broker can be your bank or a third-party app which connects the buyer and seller. The broker helps you to invest your money in the market and keep a small percentage (can be 1% or less than 1%) of their fee called brokerage rate. 

The brokerage rate can be wrong for traders who want to purchase and sell the shares a lot in a day. Those traders will lose lots of money in brokerage rates. Brokerage rates can be useful for investors who wish to invest their money for an extended period; they have to pay it for one time.

What is investing and trading in the market?

They are investing means that investors invest their money just once in the market for an extended period to get higher returns.

Trading means that the trader invests their money and pulls their cash in a day to invest their money in different shares to get the profits from other claims. 

Is the stock market the same as ‘Gambling’?

Many people compare the share market with gambling because of the higher risk, which is true if an investor does not have any prior knowledge or have not done the research of the Company’s past performance, financial growths, Company’s parameters, and accounting history and blindly invest their money in the Company and have no idea how is that Company going to do in the future then the investor might lose his money in the stock market. If you do not have any prior knowledge of the stock market, you should not invest your money in the market;and investment in stock market become easy, it is hazardous to support blindly.

To conclude

To conclude, it can be said that the stock market is not as scary a place that people make it to be. If one knows the basic whereabouts and the process of what goes on, it becomes easy to navigate and make wise decisions on your own, which in the future will strengthen due to experience. 

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