What is stock market ? How does stock market investment works ?

Introduction to stock market

Stock market is a place where selling and buying shares of public listed companies take place. In India we can see 2 stock markets. NSE [National stock exchange] and BSE [Bombay stock exchange]. In BSE more than 5000 Companies are listed and in NSE more than 1600 Companies are listed. Stock market have a lot of participants.

• Public listed company
• Investors
• SEBI
• Clearing house | Depository participants (CDSL, NDSL)

What is public listed company?

Every company have a value for their business and the valuation of business defining from “No of shares * Value of each shares”. Example if a company having 1000 shares and the value for 1 share is 1000 then the valuation of his business is 1000000.

When the companies plan to expand they need to raise the money. When they listed as public listed company their ownership organized through shares and they can be freely traded in stock market.

Once they registered as public registered company they can issue IPO [Initial public offers]. Then they moved to share market so people can start buying and selling of shares.

Government of India and SEBI defined a lot of criteria to create a IPO for a company. A company need to fulfill many criteria to enter into stock market.

Who can be an Investor?

There are many investors participated in the stock market.

• Individual investors known as retail investors
• Institutional investors [pension funds, hedge funds, index funds, mutual funds]
• Asset Management companies
• Foreign investors

What Investors do in Stock market?

Stock market is a place where an investor can increase the wealth, Investor buy shares and sell that when it became more profitable. An investor cannot buy shares directly from a seller. Here the role of broker take place. Brokers are the authorized partners of stock market.

Most famous Brokers in India

• Sharekhan –  https://www.sharekhan.com
• Zerodha – https://zerodha.com
• Angel Broking – https://www.angelbroking.com
• Upstox – https://upstox.com
• ICICI Direct – https://www.icicidirect.com

How can you buy a share from Stock market?

Trading and demat account is must for an investor to buy and hold shares.

Demat account

Initially shares are transferred through paper format. To avoid the risk of handle the paper later it moved into de-materialized form. This is known as D-materialized account or Demat account. Every investor need a Demat account to hold the electronic form of shares which investor purchase.

Trading account

It’s an investment account which holds securities, cash, and other holdings. In trading account we keep money to purchase the shares. Usually we can transfer money from any normal bank account. Trading account money won’t get any kind of interest. Now days some of the companies provides all these together.

How to select a company for stock market?

Before investing into stock market, the investor should analyze a stock in two ways

• Fundamental analysis
• Technical analysis

Fundamental analysis

Fundamental analysis is the analysis of business financial statements, markets and competitors analysis. An investor can do a basic study of business’s expansion, growth, Leadership, scope of the business etc.

Technical analysis

Technical analysis is a method of collecting information from a pattern or a trend. Trend analysis help to predict the trend like bull market run or bull to bear market. Trend analysis based on the past data predicting for, what will happen for future.

 

How to determine a stock price ?  Why the price of stock fluctuating ?

In this paragraph will try to understand how the price of stock get fluctuated. Suppose if a company is growing and the results coming around the company is positive then the price of stock gets increased.

This happens because of the demand, if demand for a particular share increases the price of a stock get increased. If the company’s performance is bad then the investors try to sell the shares. The company’s performance is one of the factor to determine the share price.

There is one more factor which determine the price of a share. Consumer sentiment is the factor which determine the share price. Suppose if an investor holds a company’s share and the investor heard a news about the competitor company. This may lead to an investor to think emotionally and take decision. This may lead to decrease the share of a price.