Most of the time seafarers end up buying the wrong stock on someone’s tips. In this article, we will try to teach each and every individual about the basics of stock market. So its basically a guide on STOCK MARKET BASICS FOR SEAFARERS
The stock market which is commonly known as the share market is a place where people trade (Buy and/or Sell) shares of publicly listed companies. Stocks also called Shares are nothing but a representation of ownership of any company or business. So buying any stock will make you part owner of any company.
In India, most of the trading takes place in 2 major stock exchanges commonly known as the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Bombay Stock Exchange is the oldest stock exchange of India. It was founded on 9th of July 1975. And currently, it’s 146+ years old.
To end the monopoly of BSE, NSE was created.
While National Stock Exchange of India known as NSE was founded in 1992 and started trading in 1994. So we can say that BSE is the big brother of NSE.
What is Stock Exchange?
I just gave you a little introduction of two major stock exchanges of India. Bombay Stock Exchange and National Stock Exchange Commonly known as BSE and NSE respectively. So you might be asking, what is a stock exchange?
A stock exchange is a place where all of the buying or selling of stock happens. It not just offers stocks but also other money market instruments such as bonds, Mutual funds, Contracts (FNO), and other securities.
Even though BSE and NSE are two separate exchanges but both of them work in the same manner like operation timings holidays, settlement and margin rules. This all is not just a coincidence. Because there is a board named Securities and Exchange Board of India known as SEBI.
SEBI makes all these rules and regulations for all the exchanges operating in India, for the safety and security of investors. So that every investor or trader can invest freely and securely.
What is the importance of Stock market?
There are many benefits of a stock market. First of all it allows private companies to raise capital by offering company stocks and bonds in the free float market. By going public, the performance of a company is always under the radar and public makes sure that stock price of a company is always priced right.
And second thing every stock market ensures that country is having a free market economy. Where Every person has a chance to invest and earn. The market is not playing in the hands of few individuals. It allows common people to invest or trade and earn money which further makes contributions to the Counties economy.
The stock market also makes sure that right people match for buying and selling of a specific share. For example, if the price of a share is 100 and tick size is 1. Then stock exchange will make sure that first the person who is selling at 101 will get the buyers then 102 and 103 etc.
Similarly, if the price of a share is at 100 and tick size is 1. Then Stock Exchange will find sellers for people who are looking to buy that share at 99 then 98. The exchange will make sure that price is not jumping 100 to 90 then 110 after that 92.
How does a stock market make money?
Any stock market which is running in the world is making money for itself and for the respective government. Because when you initiate a trade either it’s a buy or sell every stock market have a transaction fee which is mandatory and automatic.
Secondly stock market earn money from the companies which are listed on the exchange. Fee could be one time or monthly or yearly depending on the rules. But mostly it’s Entry fee and After that yearly fees.
Other than that stock exchange is also sell the data like real time price changes historical price changes, volumes, delivery quantity etc. Exchanges also on money from brokers which allow you to trade or invest on stock markets. Selling courses related to Trading and investing is a earing any stock market.
What is an IPO?
Till now you have learned about the Stock exchanges and Board which work in a regulated manner to provide a safe and secure platform to invest your hard-earned money. So the big question is how can one list his own company in any stock exchange operating in India.
The short answer to this question will be via the Initial Public Offering which we call is IPO. It is a process which allows a private corporation to offer their shares of the company to raise capital from public investors. Before a company applies for IPO it’s called a private company but after the IPO it will be called a public company.
There are certain rules and regulations for the IPO or listing also. Not every private company can be listed on the stock exchange. Like In NSE there is a rule that you have to be three years old company and 100 crore in capital before they can apply for Initial public offering IPO. These rules exist to safeguard the money of a regular investor.
In the process of IPO company hire a few experts which value the company depending on the previous performance, branches, business model, expected growth Etc. After valuation of the company promoters decide in how many shares they are going to divide the company. By that calculation Price of any share on the initial stage is counted.
For example after the valuation ABC company is valued at 100 crore. If the owners of the company decided to create 100 shares of the company the value of every share will be 1 crore. Similarly if the promoters decided to create 1 crore shares of the company the value of per share will be 100 rupee.
Remember only at this stage promoters can decide what should be the value of a stock. After that it is public who is going to buy these shares and will decide depending on the demand and supply. What should be the valuation of a share price. Promoters can always merge and split the share according to the rules and regulations of respective exchange in which they are listed.
How you earn money from stock market?
There are multiple ways in which you can money as a investor from stock market. 1st you buy stocks of a company and price of that stock rises to X percentage so your investment which you did in stock will increase by X percentage. For example you buy RIL at 1000 rupee per share a total of 10 shares. That you have invested overall 10000 rupees in RIL share.
If the price of RIL increases to 1100 that means Price has increased 10 percentage since you bought it. So overall you have earned 10 percentage of your invested money which will be 1000 rupee. In simple words you have earned hundred rupee per share and you hold 10 shares. That means 10*100 = 1000.
And the second biggest way of earning from stock market as an investor is the dividend. Most of the companies announce dividend once or twice a year after announcing the Annual or Quarterly results. But there is no rule that every company have to announce a dividend. Because dividend is mostly announced from the profit a company makes in a specific period of time. There are other ways in which an investor make money from the stock market is doing Day Trading.
What is the difference between trading and investing?
There are few ways in which buying and selling is done on any stock market. First is via investing and second is trading. Let’s start with the investing, investing in simple word is buying shares of a company and holding it for more than a month or two. Why more than a month or two you will learn about it in the trading section. you can hold shares for any number of months or years after paying the whole amount up front. If you buy 10 shares of Reliance at 1,000 which will cost 10,000 overall. You can pay 10,000 upfront and hold it for year or even 10 years there is no time limit.
On the other hand if buy shares of any company and sell those within a few minutes or a few days it will be called trading. People do it on regular basis. Remember I told you about one or two months time frame. That is because there is a thing in stock market which is called future and options contract. Every month exchange generate a future contract of specific stocks which have expiry of 3 months but mostly that’s highly active for on month.
Trading and investing have other classifications also Like swing trading, scalping, short term investing, long term investing, intraday trading etc. But overall it comes at the end, how long did you hold a share after buying.
How stock price move up and down?
This is one of the most important question which people ask each other as a beginner that how price of any stock moves. Well to answer this question there is a simple answer DEMAND AND SUPPLY or FEAR AND GREED.
Till now we knew that company owners decide the price of every share in the process of IPO. After that it is all in the hand of public. If a company keep posting good results, have benefit on regular basis the price of the company share will increase. Because there will be more people interested in buying a good company then selling. As per the thumb rule of demand and supply. If there are more demand than supply, the price of that share will increase.
This Will be the classical case of Greed. It is not a bad term in the stock market. Because people get greedy when they see if a stock is rising and they also start buying it. You know that there is no end to the greed. Similarly there is no end at what levels a stock price can go.
In the second scenario if company keep posting bad results and bad performance. Then there will be more people interested in selling the share than buying. And as per the thumb rule of demand and supply more supply for discount on the price. As we have talked about the greed. This second scenario will be the perfect example of fear. When price of a share decrease, those who have already bought it get the feeling of fear. Which result in more selling pressure and more discount on price of a share.
How can you start investing in stock market?
To start investing in stock market you have to have a demat account and trading account registered with the specific stock exchange. And you cannot go directly to the exchange and ask for a demat and trading account. There are a few registered brokers which open your account.
And to access that demat and trading account you have to go on that brokers platform and do your trading then broker will send your orders to the exchange. You do not have to worry about anything. Everything happen in the fraction of seconds so there will be no price difference in your brokers platform and stock exchange directly.
Always make sure that your broker is registered with SEBI and with the exchange where you want to trade. Because if your broker do not have MCX registration then you will not be allowed to trade in commodities. And the platform of your broker is easy to access, User friendly UI and fast order punching is also very important factor.
Zerodha is one of the leading broker which allows you to trade on MCX NSE and BSE all major stock exchanges of India. At very Reasonable broking charges. UI of Zerodha is very user friendly and it puts orders at lightning speed. Which is very important for a day trader.
I hope you like this article on the stock market. In case of any doubt you can comment below.
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