What is Share Market?

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You must have heard of terms like “stock market”, “share market” in your day-to-day lives. So, what is share market? If you are just an average investor, then you can get by just fine without bothering much about this term. However, if you are in it for the long haul and want to learn how to trade in shares, then having some basic knowledge is imperative. A share market is a basic platform that brings buyers and sellers in one place to trade publicly listed shares during market hours. In India, there are two principal stock exchanges. One is the National Stock Exchange (NSE) and the other is the Bombay Stock Exchange (BSE). So, let us begin by understanding share market basics.

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Why invest in share market?

In the words of the legendary Warren Buffet, “Investing is laying out more money now, to get more money back in the future.” Even though according to some, ‘investing in shares’ is a risky proposition, studies have shown that putting your money in the right shares for a long duration could provide the solution for beating inflation. Furthermore, it can even be a better investment option than gold and real estate. Having said that, if investment has been done in the right kind of shares, it can help traders in making profits.

How to Invest in Share Market?

  • To invest in the share market, you need to open a Demat and trading account. That’s mandatory.
  • After that, log into your Demat and trading account and choose the shares you wish to buy and sell. Make sure you have the requisite funds in your account to buy those shares. You need to present the necessary documentation for it. Upon successful verification, your account will be opened.
  • Select the price point at which you want to buy and sell shares. Then wait for the buyer/seller to fulfill that request.
  • Once the transaction is done, you either receive shares or money for the stocks you bought or sold.

Types of share market

The Share market can be classified into two types, namely the Primary and Secondary Markets.

PRIMARY MARKETSECONDARY MARKET
Before a company gets listed in stock market, they enter the Primary market. The purpose of entering the primary market is to raise money and if the company is selling their shares for the first time, it’s known as the Initial Public Offering (IPO).Once the shares are sold in the primary market, they are then traded in the secondary market. The transactions in the secondary market, called trades occur in the stock exchange. Here, the investors buy and sell the shares amongst themselves at an agreed-upon price. Usually, a broker acts as an intermediary that facilitates such transactions.

What Is Traded On The Share Market?

There are four types of financial instruments that are traded on the stock exchange. They are as follows : -

  • Shares – It represents a unit of equity ownership in a company. Investors holding a company’s share are known as shareholders.
  • Bonds – Bonds are issued by a company to raise capital from the public. Bonds represent loans made to the issuer. Instead of going to a bank, the company acquires money from the investors who buy its bonds. It pays its investors a fixed rate of return.
  • Mutual Funds – Mutual funds are companies that pool money from multiple investors and invest the money in a mix of securities like stocks, bonds and short-term debt.
  • Derivatives - Derivatives are financial instruments that derive their value from an underlying asset like shares, currency, commodities etc. Futures & Options are common examples of derivative instruments.

How are Shares Priced in the Market and Who Determines the Price?

After a company’s shares start trading publicly on a stock exchange, the price of its shares are factored by the demand and supply of its shares in the market. If there are favorable factors, the demand for its shares will be high, thus leading to an increase in share price.

Why do companies need shares and why do they have to list it?

Companies need more capital when they are expanding their business. At such times, companies approach the share market to offer a certain number of shares based on their market value that investors can purchase. Investors pay some money to the company and in return get to be part owners. When share value rises, the value of the shares owned by the investors rises.

A company can list its shares by selling its shares to the public through a process namely Initial Public Offering. The company has to abide by the rules and regulations of the Securities & Exchange Board of India (SEBI) to launch its IPO and to be eligible for listing. The SEBI is the regulator of securities market in India. It safeguards the interests of the investors in the securities market.

What is a stock exchange?

A stock exchange is a platform where different financial instruments like stocks and derivatives are traded. It helps in the buying and selling of shares and other securities. The activities in the stock market are regulated by SEBI. The primary stock exchanges in India are NSE and BSE but in totality at present, as per SEBI, there are seven recognized stock exchanges in India.

What are Sensex and Nifty?

In India both the primary stock markets, that is the NSE and BSE require an index to measure the performance of the market. Sensex or the Sensitive Index is the index for BSE whereas Nifty is the index for NSE.

The regular timings of NSE and BSE stock market is 9:15 AM to 3:30 PM. Additionally, there is a pre-opening session from 9:00 AM to 9:15 AM and a post-closing after 3:30 PM which goes on till 4:00 PM. The stock markets remain shut on certain days which are known as stock market holidays. Holi, Republic Day, Eid are examples of such holidays. The Share market remains closed on weekends.

How to Make money in a stock market?

If you are a beginner in stock market trading, along with discipline and patience, you need to do a thorough research on the markets before you start share trading. The lure to earn good money will always persist but one must keep in mind the volatility of the stock markets before arriving at a decision as to whether to hold or sell the stocks in hand. If you want to get better at stock market trading, you need to understand the different financial instruments like shares, ETFs, Futures & Options, etc. and the various opportunities that are available in the stock market through order types, like intraday, delivery and margin trading.

Share Market Basics - Important Terms

Now that you have an idea of what the share market is, let’s take a look at some of the common, yet important terms that are used by traders and investors.

  • Demat Account: A demat account is a digital account that’s used to store securities like shares, bonds and mutual fund units electronically.
  • Stock Broker: A stock broker is an intermediary entity between a trader or investor and the stock exchange. The broker executes buy and sell trades on the stock exchange on behalf of the trader or investor.
  • Trading Account: A trading account is an electronic account provided by a stock broker. Traders and investors can use the account to buy and sell shares and other securities on the stock exchange.
  • Portfolio: A portfolio is a collection of assets that an investor has invested in. It can either be composed of multiple types of the same asset class or different asset classes altogether.
  • Index: An index is a collection of stocks listed on the stock exchanges. It is used to measure the performance of the stock market as a whole or just a certain section of it.
  • Sensex: Sensex is a broad market index created by the Bombay Stock Exchange (BSE). It comprises 30 of the top companies in terms of market capitalisation listed in the BSE. The index constituents are from multiple major sectors and industries of the economy.
  • Nifty: Nifty is a broad market index created by the National Stock Exchange. It is made up of 50 of the top companies in terms of market capitalisation listed in the NSE. Similar to Sensex, Nifty also constitutes stocks from major sectors and industries of the economy.
  • Bullish Market: If the prices of stocks have been rising for a period of time, the market is referred to as a bullish market.
  • Bearish Market: If the prices of stocks have been falling for a period of time, the market is referred to as a bearish market.
  • Opening Price: The opening price is the price at which the first trade of an asset gets executed in a trading session.
  • Closing Price: The closing price is the price at which the last trade of an asset gets executed in a trading session.
  • Bid Price: The bid is the highest price that the buyer of an asset is willing to pay. The details of the list of bids can be viewed for any asset through the stockbroker’s trading portal.
  • Ask Price: The ask is the lowest price that the seller of an asset is willing to sell. The details of the list of asks can be viewed for any asset through the stockbroker’s trading portal.
  • Dividend: Companies may occasionally distribute the profit that they generate to their shareholders. This distribution of profit is known as a dividend. Dividends can be in the form of cash or additional shares.
  • Derivatives: Derivatives are unique financial instruments that derive their value from the value of an underlying asset. Just like shares, derivatives can be freely traded on the exchanges. There are two primary derivatives available for trading - futures and options.

Conclusion

In order to start share trading or investing, one needs to open a Demat and Trading account. Bajaj Broking is a trusted brokerage firm with one of the lowest brokerage rates in the market. If you don’t have a Demat account, open one today and start share trading right away!

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FAQs

Can I open multiple demat accounts?

Answer Field

Yes, you can open multiple demat accounts but only under the below conditions:

  • You can open only one demat account per DP using the same PAN card.
  • You can open multiple demat accounts with different DPs using the same PAN card.

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