Introduction
If you are a beginner in the stock markets, then let us first understand its basics. The stock market is also known as the share market. It is a place where people meet to buy and sell shares of various companies. In the digital age people use different types of computers like CPU, GPU to buy and sell stocks effectively.
Where computers were not there people were working with the help of brokers or banks and it was time consuming process.
- The stock market is the market for companies that offer shares to buyers.
- Stock exchange is the platform for trading of these shares.
- There are several stock exchanges in India like National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). These two are popular among people.
- You need a Demat account to do these transactions for buying and selling stocks.
To avoid any fraud in the Indian stock market, a government authority SEBI (Securities and Exchange Board of India) regulates the rules and regulations for the companies and people in the Indian stock market.
Types of Market
There are two types of markets in the Indian stock market. These are primary and secondary markets.
Primary Market
This is the initial step for any company in the market. To enter the stock market a company needs to come up with an IPO (Initial Public Offering). Its purpose is to collect funds to increase the business of the company. People subscribe to the IPO in advance.
Secondary Market
This came after the company allotted the IPO to the subscribers successfully. People can start buying and selling stocks as usual.
Reasons for Fluctuating Stock Prices
These are possible reasons:
- In case of high demand but low supply
- In case of high supply but low demand
Here, high demand means more buyers want to buy but less number of sellers are available for that particular stock.
There are also external factors:
New events:
This can be political or economical or social. Change in governance, change in repo rate etc.
Company Performance:
It directly depends on the performance of the company. If the company performs well, there will be more buyers and if the company does not perform well, there will be more sellers of this stock.
Sector Performance:
It also depends on the performance of the sector. Take the example of corona vaccine in the corona period. Due to high demand of these vaccines people were investing in vaccine manufacturing companies and hence the sector was doing well.
Significance Of Stock Indices
A stock market index tracks the performance of a stock or group of stocks. The stock market creates these groups on the following criteria:
- Sector
- Company size
- Company market cap
BSE Sensex index and NSE Nifty have 30 and 50 groups respectively. These groups help investors analyze the performance of a specific sector.
Equities and Derivatives
There are two types of products: equities and derivatives.
- Equity is related to stocks. Equity means the buyers have partial ownership.
- Derivatives are financial contracts that are related to F&O (Future and Options), i.e., share, equity, currency, commodities etc.
How can you invest or trade in shares?
You can start trading online or offline. You can use your smartphone or computer and various available trading apps to buy and sells shares. There are various online platforms available to do this. If you don’t have online setup then you can also do it offline by visiting broker’s office or providing instructions to them by phone call.
Demat Account and Trading Account
It is like a bank account which is used for share market purposes. You can open your Demat account by providing various required documents like Aadhaar, PAN, ID etc. After opening a Demat account, you also need to open a trading account which is used for trading purposes.
Trading and Investing
When people buy and sell shares for a short period of time (number of hours, days or months) to make a profit, it is known as trading. But when people buy shares in a company’s stock for a longer period of time (number of years), it is known as investment.
Hence, short term investment is known as trading. People can choose what is suitable for them by research and analysis before buying shares of a company. Based on this, they can choose to Trade or Invest in a company.
Conclusion
Now you should have better knowledge about the Indian stock market and trading. You can also trade by opening an online account on Zerodha or on the broker site. But you should always be careful while investing in any particular share market is risky. What you can lose or gain depends on your knowledge and awareness of it.