WHAT IS SHARE MARKET?

We all, some or the other day, must have encountered these terms like stock exchange or shares even sensex and nifty. In this series of posts, we will solely discuss the stock market, its functionality, regulations and the most important thing, the factors influencing the gain and loss in stock markets from scratch.

WHAT IS A SHARE MARKET OR STOCK  EXCHANGE?

Share Market,also known as Stock Market or Stock Exchange, is a well regulated forum which deals in buying and selling of the ‘Shares' or some part of a company. Now, many people don’t understand the significance of the word share.

HOW SHARE MARKET WORKS?

HOW THE TRADE OF SHARES TAKES PLACE? (Very Basic)

When any company expands its business, they require capital. Let's assume that a company has a value of 100 crores. Now they are willing to expand their business and for that the need other 300 crores over a period of time. Assume that they have 200 crore. They still need 100 crores.Now the company,if it takes a loan,it would cost a great deal of interest. So what the company does,it makes,say 1 crore parts of the required amount (100crores) and each part worths Rs. 100. This each part is called a share. 

This shares are listed in the stock market. Generally,there are enough no. Of shares available for sale either freshly by company or by some other person who already bought it and now wishes to sell them. NOW if someone buys,say 500 share of that company, so he has to invest 500×100=Rs.50,000.This way,a share market functions and shares are sold.Now these 50,000 are directed to the company and company uses it for whatever it wants. Now the role of stock exchange is over.

HOW ARE PAYMENTS MADE?

One needs to get a DEMAT ACCOUNT, which is done through a registered broker,mostly free.The payments are done solely online and buying and selling takes place through a registered BROKER. There are several registered brokers who might take some minimal brokerage fees.

 All the payments are absolutely secure as its regulated by SEBI,a governmental body. Just take the share to be money which is deposited in your DEMAT ACCOUNT. And all the buying and trading can be done only through your DEMAT Account.

HOW DO YOU MAKE PROFIT?

Now one has invested in the shares of a company, so he expects some profit rather.

Now that person is a sort of owner of some part of that company. When the company gathers 100 crores, it has 1 crore fragments owner (might be less also as same people can buy 50 or 100 shares). 

Now the company uses 300 crores and makes a profit of 150 crores. When the company makes profit and 100 crores become 150 crores (as 200 crores are of the company and the 100 crore profit over their 200 crores is theirs,rest 50 crore profit over the public's 100 crore is used to increase the individual owned shares.

Now that means company has made a profit of 50 crores.Now one share has a net worth of Rs. 150*. So the the share holder can opt to sell those shares and (thus a person who invested Rs. 50,000 for 500 shares)can sell 500 shares for 500×150=Rs.75000.

And thus he makes a profit of Rs. 25000**. Resulting in a profit of 50% You can't expect this from FD or any other investment like Gold,or Real Estate.

 You can opt to sell the no of shares you want,no need to sell all at one time. All is up to you.

*Rs 150 don't directly become 150 from 100. It gradually becomes Rs. 105 after 5 days then Rs.110 in say,8 days and so on. The share,if allowed to mature for long term like 5,10 or 20 years,They can be 200 or 300 Rs.

**The price can even go to Rs.98 but that happens in very very rare conditions.

Shares result in fall of prices when there is an economical crisis like COVID-19 where consumers lose their lives. Else any other type of conditions, generally, don't result in loss.

Thanks for reading this article. 

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