Hello friends, we are going to discuss share market in this blog
What is the share market?
Why is it in place?
How does it work?
What are its advantages and disadvantages?
And how you can invest money in it ?
Let us find out more about share markets in this blog.
Stock market, share market or equity market all three has same meaning. In these are markets where you can buy or sell a company's shares. If you are buying shares of a company means buying some percentage of ownership of that company. That means you are the holder of that company’s percentage. If the company makes a profit, you will be paid a percentage of that profit. If the company suffers a loss, we also bear the percentage of that loss.
Example
Telling you an example of this on the smallest scale, assume you have to establish a start up. You have 1,00,000 rupees, but that's not enough. So, you go to your friend and tell him to invest another 1,00,000 rupees and offer him a 50-50 partnership. So, whatever your company profits in the future, 50% of it would be yours and 50% of it would be your friend's. In this case you gave 50% of your company share to your friend. The same thing happens a lot in the stock market . The only difference being, instead of going to your friend, you go the entire world and invite them to buy shares in your company.
How share market starts
The origins of the stock market go back about 400 years. Around 1600, there was a Dutch East India Company similar to the British East India Company. The Netherlands had one such company in the country today, known as the Dutch East India Company. A map of the entire world has not yet been found. So companies sent their ships to find new cities and to trade in distant places. The voyage was thousands of kilometers. This required a large amount of money. In those days, one person did not have that much money. So they publicly invited people to invest in their ships that when these ships were traveling long distances to other countries and returning with safes they were promised a share of the treasure / money but this was a very dangerous affair, as more than half of the time The ships could not return. They were lost, or broken, or plundered. Investors realized the dangerous nature of the industry as anything could happen to them. So, instead of investing in one ship, he preferred to invest in 5 to in money. So that at least one of them was likely to return. A ship used to go to multiple investors for money. So it created some stock market with open bids of ships on their duke. Shocks are the places from which ships come out. Gradually the system became successful because the common people supplemented the money crisis facing the companies. And ordinary people got a chance to make more money. You must have read in the history books about how rich the English East India Company and the Dutch East India Company became during that period. Today, every country has its own stock exchange and every country is heavily dependent on the stock market, the stock exchange is the place where people buy and sell shares of companies.
Types of market
The market can be divided into two types- primary market and secondary market is the primary market where companies sell their shares. Companies decide exactly what their share prices will be. Although there are some rules. Companies can't do much tricks because a lot of it depends on demand. How much are people willing to pay for company shares? If the company is valued at Rs 1 lakh, it sells its 1 lakh shares and offers shares at a rate of Rs 1 per share. If the demand is high and many people want to buy its shares, then the company can definitely sell its shares at a higher price. Decides what companies do nowadays. There is a minimum price and a maximum price. They decide to sell their shares in that category. The point to note here is that each share of the company has the same value. The company must decide how many shares it wants to share. If the total value of the company is 1 crore, they can make 1 lakh shares of Rs 100 each or they can make 2 lakh shares of Rs 50 each. When companies sell their shares in the stock market, they never sell 100% of them. The owner always reserves most of the shares to maintain his decision power. If you sell all the shares, the buyers of all the shares will become the owners of the company. Since they are all owners, they can all make decisions about that company. Anyone who owns more than 0% of the shares can make the relevant decision. So the founders of the company prefer to hold more than 50% of the shares. For example, Mark Zuckerberg retains 60% of Facebook's shares. People who have bought shares of the company can sell them to other people.
This is called the secondary market where people buy and trade shares among themselves. In the primary market, companies set their share prices. Companies cannot control the prices of their shares in the secondary market. Share prices fluctuate depending on supply and demand. As a result, share prices fluctuate depending on supply and demand. Almost every major country has its own stock exchange. There are two popular stock exchanges in India, one Bombay Stock Exchange has about 5500 registered companies. Other national stock exchanges have 1 that00 registered companies. Many companies are listed on the stock exchange.
Indices of Indian Share Market
If we want to see if companies' share prices are going up or down, how do we see it? The Sensex and Nifty have some measurements to measure this. The Sensex, the average trend of 30 companies in the Mumbai Stock Exchange, shows whether the shares of companies are going up or down. The full form of the Sensex, the Sensitivity Index, shows that the number of Sensex has reached above 40,000. The number itself is not much. The value of this number can only be understood by comparing it with the previous figures. Because the numbers were set at random, they decided that initially the shares of thirty companies would have values. So we compile all the numbers and then say it's 500. So the Sensex is slowly rising and in the last 50 years it has reached over 40,000. So this shows how much the share prices of these companies have come up in the last 10 years, there is another similar index - NIFT - National + Fifty. The Nifty shows fluctuations in the share prices of the top 50 companies listed on the National Stock Exchange. If a company wants to sell its shares on a stock exchange, it is called a "public listing". If a company sells its shares for the first time, it is called an IPO-Initial Public Offering so that the shares are given to the people first.
SEBI
This was very easy to do during the East India Company. Anyone could sell their company shares to the public. But, today the process is very long and complicated and that is why it should be because it is so easy to scam people who can be listed on a stock exchange with a fake company, and exaggerate its value and actions their company could lie to people and people foolishly Will invest in the company. He was then able to flee with the money. So in history, it has become very easy to scam someone, there are many scams like this. E.g. Harshad Mehta scam Satyam scam, they were all cheating people and fleeing by collecting money by listing themselves in the stock exchange. So and when these scams happened, the stock exchanges realized that their procedures needed to be strengthened and evidence of scams created. To this end, resolutions and rules have been strengthened, which today have many complicated rules. SEBI - The Securities and Exchange Board of India. If you want to do this (e.g. get listed) then you have to meet the SEBI criteria. Their criteria are very strict, for example, your company must have a lot of checks and balances on its account. At least two auditors must have checked your company's account. This whole process may take about 3 years. More than 50 shareholders must be present in the company if you want to list the company publicly. When you go to sell their shares but there is no demand from the people, SEBI can remove your company from the list.
Now, how can you invest money in the stock market? During the East India Company, ships used to go to the docks where they left and bid and buy stocks before buying internet, but they had to go physically to the Bombay Stock Exchange building to do so. In a place with internet, you only need three things- bank account, trading account and Demat account. Bank account because you will need your money. A trading account, to allow you to trade and invest money in the company. A demat account for storing stocks that you purchased in digital form. Most banks today have started 3 out of 1 accounts with all three accounts included in your bank account. Ordinary people are called retail investors, i.e. ordinary people who want to invest in the stock market. The retail investor always needs a broker. A broker is one that brings buyers and sellers together. For us, our brokers can be our banks, third-party apps or a platform. When we invest money in the stock market through brokers, the broker puts some money as our commission. This is called "brokerage rate". Banks usually charge around 1% brokerage rate but 1% is a bit higher. It's not fair how much it should be, if you look properly you will find platforms that charge approximately 0.05% or 0.1% brokerage rates. For those who want to trade in a large number of stocks, this brokerage rate is a loss. If a lot of stocks are bought and sold in one day, a lot of money will be withdrawn as a brokerage fee. But if you want to invest in the long run, the high brokerage rate won't make much difference because you only have to pay it once.
Difference between Investing and Trading
So, investing and trading are two different things. Investing is to put some money in the stock market and let it stay there for a while and trading is to put money in a different place quickly and withdraw money from some place. It all happens quickly, in fact selling shares is a job. There are a lot of people in the world who are merchants and work all day long, take money out of one area and put it in another, put it in another place and make a profit in the process.
Is Share Market is Gambling ?
An important question arises whether we should invest money in the stock market or not. Many people compare it to gambling because it carries a lot of risk. I think it's fair to say that because it's really a kind of gambling. If you do not know the type of company and its functionality, the parameters of the company and its financial records, if you do not follow its history and accounting information, in a way it is a gamble. Because we have no idea how the company will perform in the future. You just hear people say the company is doing well and we have to invest it in the stock market, so you invest in it because you should never do it because it is very risky and when there are people who do it on a working day, for example, traders, Who are experts in the field and know more about the stock market. They will clearly outperform others because they have an idea of how this works, so in my opinion, you should never invest directly in the stock market and rely on experts instead.
If you want to invest in the stock market, you must have the right knowledge about it. You should check all the factors like P / E ratio, P / B ratio, EV / EBITDA and check free cash flow.
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