Do you want to rise your money while you are sleeping? or without working physically but with some calculated risk? if yes then you must start investing in stock market which is also known as share market. So what is stock market? How it works? How it raises your money? What you need to start earning in stock market? ……so many questions will be answered here in this article just keep reading and keep learning.
What is stock market?
The stock market is a platform where you can invest your money to raise or reduce which depends on your research and timing of investing. This is like all other markets but only the difference is, here you buy and sell something which you can’t see and well known as “Shares”.
It is a place where shares of pubic listed companies are traded. The primary market is where companies float shares to the general public in an initial public offering (IPO) to raise capital.
Once new securities have been sold in the primary market, they are traded in the secondary market—where one investor buys shares from another investor at the prevailing market price or at whatever price both the buyer and seller agree upon. The secondary market or the stock exchanges are regulated by the regulatory authority. In India, the secondary and primary markets are governed by the Security and Exchange Board of India (SEBI).
A stock exchange facilitates stock brokers to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, stock exchange is the meeting place of the stock buyers and sellers. India’s premier stock exchanges are the Bombay Stock Exchange(BSE India) and the National Stock Exchange(NSE India).
What is the difference between stock market and other market?
Which other markets do we know? The textile market, the vegetable market, the fish market and so on. Stock market and other markets both are the place where buying and selling is the process of daily but there are some differences between them.
- Level of order and discipline: When you compare stock market with fish market you would find fish market as a more orderly market. Not too long ago, when stock trading happened in the “ring”, which was an area of the trading floor (referred to as “the pit”) on which securities were traded using the open outcry system. there would be screaming, and shouting, pulling and pushing, and communication between brokers taking place with the help of sign language. And in all that din, hundreds of millions worth of transactions would take place, usually without a hitch. A new trader visiting stock exchange and witnessing trading going on would most likely think that a fight had erupted among the traders. So it was not so easy to trade that time like now. With the advent of computerization, digital trading platforms have increasingly replaced floor based trading system. Now we can trade from our home or anywhere with internet availability.
- Meeting of Buyers and Sellers: The second difference is that in the most other markets buyers and sellers meet face to face. In the stock exchange this doesn’t happen. Deals are done through brokers.
- Most significant difference: The third and most significant difference is that in other markets the seller carries the goods to be sold, the buyer goes with money in the pocket, and a physical exchange of goods for money takes place. In the stock exchange neither does the buyer pay money nor does the seller deliver the securities. Merely a deal is done. The physical exchange of goods and money happens later.
Floor Based Trading-Image Gallery (Old Way Of Trading In Stock Markets)
What you buy and sell in stock market is “Shares”
What are the shares?
In simple words, a share indicates a unit of ownership of the particular company. If you are a shareholder of a company, it implies that you as an investor, hold a percentage of ownership of the issuing company. As a shareholder you stand to benefit in the event of the company’s profits, and also bear the disadvantages of the company’s losses.
Shares represent equity ownership in a corporation or financial asset, owned by investors who exchange capital in return for these units. Most companies have shares, but only the shares of publicly-traded companies are found on stock exchanges.
What are the types of shares?
These are also known as ordinary shares, and it comprises the bulk of the shares being issued by a particular company. Equity shares are transferable and traded actively by investors in stock markets. As an equity shareholder, you are not only entitled to voting rights on company issues, but also have the right to receive dividends. However, the dividends – issued from the profits of the company – are not fixed. You must also note that equity shareholders are subject to the maximum risk – owing to market volatility and other factors affecting stock markets – as per their amount of investment.
The types of shares in this category can be classified on the basis of:
- Share Capital: Equity financing or share capital is the amount raised by a particular company by issuing shares. A company can increase its share capital by additional Initial Public Offerings (IPOs). Here is a look at the classification of equity shares on the basis of share capital:
- Authorised share capital: Every company, in its Memorandum of Associations, requires to prescribe the maximum amount of capital that can be raised by issuing equity shares. The limit, however, can be increased by paying additional fees and after completion of certain legal procedures.
- Issued share capital: This implies the specified portion of the company’s capital, which has been offered to investors through issuance of equity shares. For example, if the nominal value of one stock is Rs 200 and the company issues 20,000 equity shares, the issued share capital will be Rs 40 lakh.
- Subscribed Share Capital: The portion of the issued capital, which has been subscribed by investors is known as subscribed share capital.
- Paid-Up Capital: The amount of money paid by investors for holding the company’s stocks is known as paid-up capital. As investors pay the entire amount at once, subscribed and paid-up capital refer to the same amount.
- Bonus Shares: Bonus share definition implies those additional stocks which are issued to existing shareholders free-of-cost, or as a bonus.
- Rights Shares: Right shares meaning is that a company can provide new shares to its existing shareholders – at a particular price and within a specific time-period – before being offered for trading in stock markets.
- Sweat Equity Shares: If as an employee of the company, you have made a significant contribution, the company can reward you by issuing sweat equity shares.
- Voting And Non-Voting Shares: Although the majority of shares carry voting rights, the company can make an exception and issue differential or zero voting rights to shareholders.
- Dividend Shares: A company can choose to pay dividends in the form of issuing new shares, on a pro-rata basis.
- Growth Shares: These types of shares are associated with companies that have extraordinary growth rates. While such companies might not provide dividends, the value of their stocks increase rapidly, thereby providing capital gains to investors.
- Value Shares: These types of shares are traded in stock markets at prices lower than their intrinsic value. Investors can expect the prices to appreciate over a period of time, thus providing them with a better share price.
These are among the next types of shares issued by a company. Preferential shareholders receive preference in receiving profits of a company as compared to ordinary shareholders. Also, in the event of liquidation of a particular company, the preferential shareholders are paid off before ordinary shareholders.
Different types of shares in this category:
- Cumulative And Non-Cumulative Preference Shares Meaning: In the case of cumulative preference shares, if a particular company doesn’t declare an annual dividend, the benefit is carried forward to the next financial year. Non-cumulative preference shares don’t provide for receiving outstanding dividends benefits.
- Participating/Non-Participating Preference Share Definition: Participating preference shares allow shareholders to receive surplus profits, after payment of dividends by the company. This is over and above the receipt of dividends. Non-participating preference shares carry no such benefits, apart from the regular receipt of dividends.
- Convertible/Non-Convertible Preference Shares Meaning: Convertible preference shares can be converted into equity shares, after meeting the requisite stipulations by the company’s Article of Association (AoA), while non-convertible preference shares carry no such benefits.
- Redeemable/Irredeemable Preference Share Definition: A company can repurchase or claim redeemable preference share at a fixed price and time. These types of shares are sans any maturity date. Irredeemable preference shares, on the other hand, have no such conditions.