So, you want to invest your money into the share market and want to grow your wealth like Warren Buffet and want to live a life like Jordan Belfort in the movie “The Wolf of Wall Street,” right?
Just kidding, but if so, you are not the only one.
There are millions of people around the world, who dream of becoming rich by investing their money in the share market.
But, the fact is very few people get the fortune to make that much money by investing it in the share market. There are way more negative stories than positive ones where people lost everything by investing in the share market, but nevertheless, people are so addicted to the share market. That is because, if you choose the right share, and make smart decisions, you can be a gainer too.
Probably, you are interested in the share market and searching for information about it. If so, you have landed on the exact article. After completing this article, you will have a clear vision of what the share market is from a beginner’s perspective. You will get a basic understanding of the whole process and some common things often used in the field.
So, let’s get started the article with,
What is the share market?
A share Market is basically a place where companies who enlist their IPO can sell their shares to the investors and the buyers can buy their preferred shares. To make it, even more, simpler, a share market or stock market is a place where is a place where people buy and sell shares of companies. A share is a unit of ownership in a company that gives you the right to receive a portion of its profits and assets. When you buy a share, you become a shareholder of that company and have a stake in its success or failure.
The share market is divided into two segments.
- Primary market.
- Secondary market.
The primary market is where new shares are issued by companies to raise funds for their business activities. The secondary market is where existing shares are traded among investors. The price of a share depends on the demand and supply of the market, as well as the performance and prospects of the company.
What is the objective of a share market?
The main purpose of the share market is to facilitate the exchange of capital between investors and companies. Investors can benefit from the share market by earning dividends (regular payments from the company) or capital gains (increase in the value of the shares). Companies can benefit from the share market by accessing funds from a large pool of investors to expand their business and increase their credibility.
There are different types of shares and companies. Depending on your budget and preference you can apply various trading strategies and earn from your existing shares.
Investment benefits in the share market:
High return possibilities:
The share market can offer higher returns than other forms of investment, such as bank deposits, bonds, or gold. This is because the share prices reflect the performance and growth of the companies, which can increase over time. The share market also allows investors to benefit from capital gains, which are the profits made from selling shares at a higher price than they were bought.
Various investment options:
You will sell a huge diversification on share market investments. The stock market offers a wide range of companies and sectors to choose from, which can help investors diversify their portfolios and reduce their risk. Diversification means spreading the investment across different types of assets that have different levels of risk and return. This way, if one asset performs poorly, it can be offset by another asset that performs well.
Liquidity with ease:
The share market is highly liquid, which means that investors can easily buy and sell shares whenever they want. This gives them flexibility and control over their money and allows them to take advantage of market opportunities. Liquidity also means that investors can access their money quickly in case of an emergency or a financial need. Compared to buying any other asset like a property, a house, or something else, selling on the stock market is easier. You do not need to find a buyer on your own. You just let people know that you want to sell your shares. That’s it. once your share is sold, you get the cash in your bank account.
You get the Ownership:
The share market gives investors a sense of ownership and participation in the companies they invest in. By owning shares, investors become part-owners of the company and have a stake in its success or failure. They also have the right to vote on important decisions and receive information about the company’s performance and plans. However depending on the type of share you get offered, the ownership and your authority vary but on paper, technically you become the owner of a company when you buy their shares.
Tax benefits:
The share market can also offer some tax benefits to investors, depending on their country and situation. For example, some countries allow investors to deduct the cost of buying and selling shares from their taxable income. Some countries also offer lower tax rates on dividends and capital gains than on other forms of income.
These are some of the benefits of investing in the share market. However, investing in the share market also involves some risks and challenges, such as volatility, uncertainty, fraud, and loss of capital. Therefore, investors should do their research, understand their goals and risk appetite, and seek professional advice before entering the share market.
Now let’s talk about some most used terms in the share market which will help you to get into the share market.
Stock exchange:
A stock exchange is a place where buyers and sellers of stocks can trade with each other. Stocks are shares of ownership in a company that gives investors the right to receive dividends and vote on important decisions. A stock exchange helps to facilitate the trading of stocks by providing a platform, rules, and services for the participants.
There are many stock exchanges around the world, such as the New York Stock Exchange (NYSE), the London Stock Exchange (LSE), and the Tokyo Stock Exchange (TSE). Each stock exchange has its own listing requirements, trading hours, and regulations.
In India, there are two stock exchanges.
- NSE.
- BSE.
NSE stands for National Stock Exchange.
BSE stands for Bombay Stock Exchange.
BSE is based in Mumbai, the financial capital of India. On the other hand, NSE is based in Delhi. If you dive globally, there are so many stock exchanges around the globe. For example, New York Stock Exchange, and NASDAQ, both are US-based stock exchanges. All the stock markets around the globe run on quite similar basic fundamentals with some little changes to their policies.
When a company is going to list its shares on the stock exchanges, there are various criteria and rules. On the other hand, investors who buy shares also need to follow various terms.
Buying shares is not like buying anything else available on the market. For that, investors require various particulars which will be discussed below.
Below, we will know about some common terms that are attached to the share market and all the related things.
Stock broker:
When you have decided to purchase any share of a company, you will need a mediator who will work for you and buy the shares. Those mediators are called stock brokers. They are professionals who have deep knowledge about the market and can predict about the stocks are going to increase the price or not and advise you. Now you might be wondering if they are like superheroes for you and other new investors because you don’t have any deep knowledge and experience either.
Well, they work in exchange for brokerage charges. Each time you purchase any share or sell them, they get a commission for that. Most of the time, those brokers are reliable because they have their license to work as a share market broker, and are backed by companies. Depending on the trading company, the charges are different.
The second on our list is,
Portfolio Manager:
Portfolio managers are experts who can manage the investments of individual investors in various segments such as pension plans, hedge funds, and, closed or open mutual funds, and private investment firms. They are also referred to as financial advisors, asset managers, or wealth managers. They are deeply connected with the stock market and have deep knowledge in that field so their advice is very beneficial to decide where to put your investment. As individual investors, we have our limitations to dig deeper into the information of a fund. But, an expert portfolio manager has lots of connections and experience. They evaluate the exact possibilities with that particular fund, its history and all.
Investment banker:
Although investment bankers are not linked directly to any individual investor, we still need to know about investment bankers. Investment bankers work from the corporates or any company’s end. They work for their employer’s profit. They decide on a company, where they put their money, manage their stock prices, and others. As an investor, you need to know about the investment banker of the company of which you are about to buy shares.
A good investment banker will help a company to generate more and more revenue and as an investor, it is good for you because your share prices get higher if the company is making a good profit.
The next thing from where your journey starts is a stock buyer.
Demet account:
We keep our money in banks and if we need to buy something then we spend it from there and when someone sends us money, it gets to our bank account. But, to buy or sell shares, you can’t use your money from your normal bank account. To avail of this feature, you will require a demat account. If you buy shares, you have to spend your money from your demat account and if you sell any share, you receive the money in your demat account. It is a must-have thing in order to trade on the share market. There are many options from where you can create your demat account. In fact, most banks offer to create these accounts.
But also there are many other firms and financial institutions from where you can grab your demat account. Maximum banks charge an amount to make a demat account and they have yearly charges included too. But, many trading agencies offer free demat accounts too. However, before applying for any demat account, you need to carefully read the features of that account in detail.
52-week range:
When you start trading and start researching funds and stocks, you will hear that term quite frequently,
52-week range.
Share prices of a company fluctuate for various reasons and there is nothing to worry about if anything drastic does not happen. However, monitoring the ups and downs of a share is important. On the share market, share analysts take a 52-week duration and measure the lowest share price and highest share price of the company, and with respect to that metric, people decide whether the future of the company is aspiring or not.
Looking at this 52-week report experts predict how much share prices could be in the future and advise you to make the right decisions.
Stock portfolio:
Stock portfolio simply refers to all your investments. It includes your investments in mutual funds, stocks you have purchased, bonds, cash, and other financial assets you have. If you want to become a professional investor, having a stock portfolio is very important.
Risk Tolerance:
No matter how deep and precise your research is, there is always a chance of a share market crash and in that situation, you lose your money. Now, every investor has their own amount of capital and can bear some portion to lose in case any misshapen takes place. Risk tolerance is basically the level of risk they can take with their capital. If your risk tolerance is bigger, chances are you might lose big or achieve big. People whose risk tolerance is low, get quite low returns unless they get losses.
Recession:
The word is quite popular not only in the share market but also used to address poor economic conditions. Every year, at a specific time, we see a downfall in shares. Internationally when any war-like situation comes, a global pandemic or economic crisis takes place, or recession comes.
During that time, the share market lost pace, most of the companies lost their money and took various steps to narrow down their expenditures. Many investors buy shares of companies because, during that time, the share prices fall. As the economic condition of most people gets poor that time, they sell their shares. So, at that time very few people were interested in buying the shares.
Market volatility:
Market volatility is referred to the frequency of the ups and downs of the share market. If you see a graph of any company in the long term, you will notice there are many ups and downs. In fact, on a single day, at different times, the share prices rise and fall. However, the share price fluctuations of big companies are quite smooth. They have low market volatility. On the other hand, penny stocks, or cheap stocks have much higher volatility and experts advise investing in those.
Wrap up:
The share market can be an exciting and rewarding way to grow your wealth, but it also requires patience, discipline, and knowledge. You should always invest according to your goals, risk appetite, and financial situation. You should also keep yourself updated with the latest news and trends in the market and learn from your mistakes. Remember, the share market is not a get-rich-quick scheme, but a long-term journey. So, choose your decisions wisely.
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