BASICS OF
SHARE MARKET
Share market is a place where buying and selling
of share takes place. In simple words share market allows trading of share. You
can become shareholder of a company when you purchase their share and lose
shareholding by selling shares.
In India, only public company can offer their
share to general public.
What are
shares and stocks?
Shares are smallest unit of capital which represent
ownership in the company. For example if you have 10 percent shares of a
company then you are 10 percent owner in that company. Shares are also knows as
equities.
Stocks are the collection of fully paid up
shares.
There are two types of share market
1. Primary Market: in this market
company issue shares to various participants in the market to raise money.
2. Secondary Market: share purchased in primary market can be sold and purchase again in this market. This is to offer a chance for investors to exit an investment and sell the shares.
Both of these market are regulated by
security exchange board of India (SEBI).
Buying and selling of shares done through
brokers. Different brokers offer different plans and services.
How to start
trading and investing in share market
First of all you need to choose a broker
which will open your trading account along with demat account. Then this
trading and demat account need to link with your bank account to facilitate
smooth transfer of money.
Nowadays trading and investing in shares can
be done online which saves time and efforts.
One must note that there are different types
of charges in share market transaction like brokerage, security transaction
tax, transaction charges, goods and services tax, SEBI charges, depository
participant charges, pledging charges, square off transaction charges, payment
gateway charges, stamp charges and other service charges.
Mode of holding shares
Shares can be held electronically and
physically depending upon your preference.
Who determines prices of share:
In primary market, price of a
company share fixed by company itself. But in secondary market price of share
determined by demand and supply of that share.
There are many factors which
affects demand of a share like growth opportunity of company, earning,
favorable market condition locally as well as globally, etc.
Indicator of overall market condition
(indices)
Indices are indicators that reflect the
performance of the market as a whole or of a certain segment of the market.
Here are some common indicators:
Benchmark
indices such as BSE
Sensex and NSE Nifty.
Broader
indices such as Nifty
50 and BSE 100.
Indices created based on market
capitalization of companies, such as BSE Midcap and BSE Smallcap.
Sector-specific indices like Nifty FMCG,
Nifty Bank Index, CNX IT, and S&P BSE Oil and Gas.
These indicators state the market condition
and general sentiments of investors in the market. These helps investor or
trader in making strategy which help in minimizing the exposure of risk.
Analysis to be done before investing/trading in share: There are many different ways to think
about how to trade shares, but broadly
speaking there are two major schools of thought: fundamental vs technical
analysis.
Fundamental
analysis is the
concept of investigating the financial statements of a company to help
determine if its stock is a good investment opportunity.
Financial statements of company includes
statement of profit and loss, balance sheet, notes to account & cash flow
statement.
Investors must take into consideration that
these statement must be audited.
Fundamental analysis answers questions like
is company making enough profit, is it growing, what are the future
opportunity, etc.
In simple words fundamental analysis tells us
everything related to company health.
Hence if you want to hold shares of a company
for a long term than fundamental analysis is a must criteria.
Technical
analysis is a method
of predicting future price movements based on the examination past price
movements.
Different time frames are used to while
technical analysis.
People who trade without these
analysis generally tends to lose money most of the time.
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