If the stock market basics confuse you, you are not the only one.
Most people are either scared or don’t know how to start investing in the stock market.
Yes, the risk may be high but the reward can be pretty great.
Individuals with very little experience in investing are scared off by stories of investors losing 50% or more of what they put in.
But with the right tips and skills on your side, you may just reap the reward you sow.
What is the stock market?
A stock market is a place for investors to connect with each other and buy and sell shares of ownership in a company.
It works through a network of exchanges such as the New York Stock Exchange or Bombay Stock Exchange, where companies can list shares of their stock on an exchange through a process called an initial public offering or IPO.
What are shares?
In simple terms, a share indicates a percentage of ownership in a company or a financial asset.
Investors who hold shares are known as shareholders.
They stand to benefit in the event of a company’s profits and also take their share in the company’s losses.
Why companies need shares.
When a company is starting, scaling up or expanding its business, it will require more capital.
During such times, a company can offer a certain number of shares based on its market value that investors can buy.
Since investors will be paying the company money, in return, they will be part owners.
These are just some of the stock market basics for beginners to understand because it is important to know why companies need shares at all.
What is a stock?
A stock is a financial instrument that represents ownership in a company or corporation and a proportionate claim on what it owns and generates.
Stock ownership means that the shareholder that owns 100,000 shares of a company with a million outstanding shares would have a 10% ownership stake in it.
Most companies have outstanding shares in the millions or billions.
Types of stock.
While there are two main types of stock,
- Common shares.
- Preferred shares.
the term equities are synonymous with common shares, as their market value and trading volumes are larger than that of preferred shares.
What is the difference between stock and share?
‘Stocks’ and ‘shares’ are terms that every investor must understand before starting their investing journey.
The terms are often interchangeably used, but many people don’t realise that there is a slight difference between stock and share.
It is true that they denote the same thing, that is an individual’s ownership in a public company.
However, while the term ‘stock’ refers to part-ownership in one or more companies, the term ‘share’ has a more specific meaning.
‘Share’ refers to the unit of ownership in a single company.
What is a stock exchange?
Stock exchanges are secondary markets where existing shareholders transact with potential buyers.
It is important to understand that corporations listed on stock markets don't buy and sell their own shares on a regular basis.
They might engage in stock buybacks or issue new shares but they are not day-to-day operations and often occur outside of the exchange.
So when you buy a share of stock on the stock market, you are not buying it from the company, but from some other existing shareholder.
Likewise, when you sell your shares, you don't sell them back to the company rather you sell them to some other investor.
Pros and cons of investing in the stock market
Studies have shown that, over long periods of time, stocks can generate investment returns that are higher than those from other asset classes.
Stock returns arise from capital gains and dividends.
Capital gains happen when you sell a stock at a higher price than the price at which you purchased it.
A dividend is the share of profit that a company distributes to its shareholders.
Dividends have contributed to nearly one-third of total equity return since 1956, while capital gains have contributed two-thirds.
What are stock market courses?
Stock market courses will not only give you insight into the stock market but can also help you start exploring investing by mock trading.
There are many institutions offering stock market courses in India. Some even provide a comprehensive learning experience for investors with not much prior knowledge.
Those who want to learn more about stock market trading or wish to upgrade skills should always look out for good share trading classes.
Platforms like MyCaptain provide the people interested with easy to understand and well-taught courses that can help them achieve the goals they want.
The main significance is to choose the best course depending on what you’re expecting.
How to start investing in stocks?
Once you've learnt the stock market basics, try online demo or mock trading websites or apps.
You start by opening an account that is linked with a pre-existing bank account to carry out transactions smoothly.
Sign in and pick a stock that you want to invest in.
Purchase the stock at its listed price and specify the number of units.
Once a seller reciprocates, your purchase order will get executed. Post completion of the transaction, your bank account will get debited with the required amount.
Key Takeaways
- Share prices get set by supply and demand when buyers and sellers place orders.
- Both individual and institutional investors can come together on stock exchanges to buy and sell shares in public venues.
- Listing on exchanges provide companies with liquidity as well as the ability to raise capital.
