A stock market is a electronic platform where investors come together to buy and sell stocks of a company. The place where buy and sell of a company share happens is called Stock Exchange.
In practice, the term “stock market” often refers to one of the major stock market indexes, such as the Nifty or Sensex in the case of Indian stock market.
Nifty consists of 50 major companies of Indian economy from different sectors. While Sensex consist of 30 major companies of different industries of Indian economy. These two indexes represent large sections of the stock market. Because it is very hard to track every single company. The performance of the indexes is viewed as representative of the entire stock market.
You might have seen a news headline that says the stock market has moved lower, or stock market closed up or down for the day. This means stock market indexes have moved up or down. Meaning the stocks within the index have either gained or lost value as a whole. When any Investor who buy shares, hope to gain in profit if its price moved up. When any investor sells stocks, hope to turn a profit when its price fall by buying at lower prices.
Now let us understand first,
What is stocks?
When a company sells a part of ownership, it come to stock exchange & issues shares to many people to raise money for their growth & expansion. This process of issuing shares to public is called Initial public offering, or IPO. This is one of the processes to raise money. There are two ways to raise money, Debt or loan and selling part ownership to others in the company. This IPO is also known as Primary market.
In a nutshell, a stock represents an ownership share in a company. When you purchase a public company’s stock, you’re purchasing a small piece of that company. Stocks are nothing but part ownership in the company. Stocks are also called Shares or Equity.
If a company has a total of 100000 shares while company formation and you own 1000 shares of the company, it means you owned 1% of the company.
Afterward, the people who got shares through IPO, keep on trading among themselves on a platform called stock exchange. This place is called Secondary market. Buyers offer a “bid,” or the highest amount they’re willing to pay for a stock, which is usually lower than the amount sellers “ask” for in exchange. This difference between bid & ask is called the bid-ask spread.
This all may sound complicated, but computer algorithms generally do most price-setting calculations, so no need to worry about such things. When buying stock, you shall see the bid, ask, and bid-ask spread on your broker’s website or mobile app but in many cases, the difference will be pennies, and won’t be of much concern for beginner and long-term investors. In liquid stocks (meaning high volume stocks), this bid-ask spread is 5 paisa or 10 paisa, but in low volume stocks, this may be 20 paisa to 50 paisa or even more.
Stock market is regulated by Security exchange board of Indian (SEBI). Its aim is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”
In old days, stock trades took place in a physical marketplace. These days, the stock market works on electronic platform, through the internet and online stockbrokers. Each trade happens on a stock-by-stock basis, but overall stock prices often move in tandem because of news, political events, economic reports and other factors.
Once a company issue shares through an IPO, it becomes a public company, and it gets listed on Stock Exchanges. Exchanges are places where buyers and sellers of stocks meet virtually. Means they meet electronically.
Stock is a word used to express an investor’s ownership in an organization. Those who hold stock are commonly called stockholders or shareholders. As a shareholder, an investor theoretically holds a portion of everything from the organization.
If you want to make wealth over the long term, the stock market is the right option. Other option available to invest your money is GOLD, SILVER, Property, Fixed Deposit, Bonds & other asset classes etc. In long term perspective say 12-15 yrs period, stock market has given the best return on an average more than 15-17%. So to grab such opportunities, let’s try to understand in detail what is stock market and how the stock market works.
Most of the wealthiest persons in the world became richer because of the stock market only.
They invested in good companies when they were small, and over time these companies became big. When they became big companies, they gave good profits to their shareholders by sharing profits.
To earn profits in the stock market, we must understand first these two basic things – How to select good stocks, and How to invest in the stock market. These things are covered in our Basic of Stock market