Share Market Basics
There are a lot of people who are interested in share market. But due to having less idea and improper information, they generally avoid stock trading directly and/or indirectly. In this post, we will discuss the share market basics for beginners.
What is a Share?
Suppose there is a company, assume a private limited company which is started by 5 persons investing their money in the partnership. Suppose they initially started the company with a capital of Rs 10 crores. After a few years of running the company, the founder members want to expand their business. But this expansion requires more capital. Now the company may arrange more capital by including more partners. These new partners may be the general public. When the general public will invest their money, the company will offer the share of the company to them.
Shares through IPO:
This is the process when a private limited company becomes public by offering its shares to the general public is called Initial Public Offering (IPO). When the company was a private limited company, its profit, loss, decision and all the matters were limited to the initial 10 founder members. But when it becomes public, all its matters including profit and loss must be released in public. After IPO, the stocks of the company are listed for trading in BSE/NSE, where the initially offered shares can be traded and its shares become available to everyone for buying or selling.
What is BSE/NSE?
BSE or Bombay Stock Exchange, established in 1875, where stocks are traded (buy/sell). It maintains a market-weighted stock index, called SENSEX (or Sensitive Index) which is a statistical aggregate that measures changes. It is the market-weighted index of 30 BSE listed companies that are selected on the basis of their financial value and performance. It was first published in 1986.
NSE or National Stock Exchange is also a stock exchange and it was established in 1992. It was the first electronic exchange in the country. As BSE maintains SENSEX as an index, NIFTY 50 is the market-weighted stock index of NSE. It is the market-weighted index of 50 NSE listed companies.
How to Buy/Sell Shares?
To buy shares of a company, first, we need to have a demat account. Demat account or dematerialized account is an account provided to investors by stockbrokers like Zerodha, Axis Direct etc. Investors can buy shares of a company from any of the exchanges –BSE or NSE through this demat account. Shares bought by the investors are credited to their demat account. Having a demat account avoid the paying of stamp duty by investors. Similarly, these bought shares can be sold to exchanges- BSE/NSE through this demat account. Investors need to pay a fee to stockbrokers for the demat account and share trading.
So, through this post, we have tried to cover the share market basics for beginners. We hope that it will be useful for newbies in the stock market.
Also Read: Demat Account for Stock Trading
Disclaimer: This post is meant for educational purpose only. This does not provide stock buying/selling recommendation to investors and it never leads the investors to make any investment decision.
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Thanks for sharing this in a simple way. It is really easy to understand.