Did you know just like banks, stock market is another action-packed place of business where shares are bought and sold under one roof? Now, what is stock market? Need to know more? Well !! we will explain and help you understand on the basics of stocks and stock market.
What is a stock market?
A stock market as the name suggests, is a place where you can exchange stocks and other financial instruments like bonds etc. It’s like a playground where all the buying and selling of company shares takes place. Transactions are managed by experts called stock brokers and traders. Stock market is also termed as “bourse”. India has two national level stock exchanges: 1. National Stock Exchange (NSE) and 2. Bombay Stock Exchange (BSE). All the significant companies are listed in both these stock exchange. You can buy or sell most of the company’s shares in these 2 exchanges in India. Internationally, NYSE (New York Stock Exchange) , NASDAQ of USA, Shanghai Stock Exchange (SSE) of China, London Stock Exchange (LSE) of London and Hong Kong Stock Exchange of Hong Kong are some of the very famous Stock Exchanges worldwide.
Now let’s get an understanding of what are stocks and shares all about .
What do we understand by stock or shares of a company ?
A stock or share is a certificate which makes you an owner of a company. So, once you buy the stock certificate, you will be called as stockholder or the company’s shareholder.
Who is a shareholder?
People who invest money in buying the shares of the company are called as Shareholders. In-order to increase business or have a consistent and sustainable growth, a company requires money. Now, such enterprising companies can borrow money from the banks or borrow money from private investors and increase their debt load, (debt means a commitment that you owe to others) or they can invite people to become shareholders in their company by investing money in it.
What happens when you become the stockholders of a company?
When you invest in the stocks of the company, you become the owner of the company to the extent or to the limit of money invested by you in the company. Also, as owners you gain profits when the company earns profit and lose money when the company suffers losses.
Like for e.g. When you play a football match as a player of the team, you are responsible for the winning or losing of the match. Similarly, when the company earns profit, you as a shareholder will earn profit and when it suffers losses you will also have to bear loss.
How does the company invite people to invest in the companies?
Companies come up with IPO (Initial Public Offerings) and invite people and companies to invest money in their companies. The possibility of people investing money depends on some factors like:
• The company promoters (promoters are the people who start the company)
• The vintage or life of the company.
• Products offered by the company.
• Future or goals of the company.
• Company’s reputation.
• The suppliers and target customers of the company.
• Demand for the company products in the market.
E.g. If you have been told to select the best sports players of your school, you will select players based on good track record of winning competitions, players with 100% fitness and agility, those who follow a strong fitness regime etc. will top your choice OR e.g. if you are told to select some top books for your school library, you will look for books written by good authors, usage of simple language, colorful good stories or wider topics covered , good reviews, and popular demand of your fellow students for the listed books will make you choose some better books.
Similarly, by considering the above factors investors invest in buying shares of the company.
Who decides the valuation of the shares?
Valuation of the company’s share price is done by the financial experts based on the company’s background and financial positions in the market. It is each investor’s individual decision to buy either 1 share or multiple shares.
Who are the regulators of the stock market?
Stock Markets in India are regulated by SEBI (The Securities and Exchange Board of India). Like you have your teachers, principals or exam invigilators in school, who ensure you follow all your school rules and regulations, SEBI ensures all investors and companies follow all the statutory rules and regulations during purchase and sale of shares. This ensures no unfair gain or loss to anyone.
You can visit www.nseindia.com or www.bseindia.com to get a flavor of these stock exchanges .
Not only that, our Hollywood and Bollywood movies too have interesting stories on stock market. To name a few, “The Wolf of the Wall street”, “Rogue Trader”, “Bazaar”, “Gafla” and many more are based on stock market high’s and low’s scenarios .
That’s all folks!! Stock market is a super-duper action packed financial hub which makes and breaks the future of many investors and companies . It also predicts the pulse rate of the financial health of any country and the world.