One of the most important instruments to make money available in India is the stock market. Buying and selling of shares and various other financial instruments in the stock market determines the fortunes of many.
In my personal experience, many people have approached me to understand exactly how the stock market works and what are shares of a company. To start from the basics, let us understand what shares are first.
Think of a company like a big pizza. When you own shares of that company, it’s like owning a slice of that pizza. The more slices (or shares) you have, the bigger piece of the pizza (or company) you own.
Functions of shares:
Ownership: Each share is like a tiny piece of the company that you own. If you have more shares, you own more of the company.
Voting Rights: Sometimes, owning shares gives you the right to vote on big decisions the company makes, like who runs it.
Dividends: Some companies share their profits with shareholders by giving them money, called dividends. If you own shares, you might get some of that money.
Making Money: If the company does well and people want to buy more shares, the value of your shares might go up. If you sell your shares for more than you bought them, you make money.
Buying and Selling: Shares are bought and sold on special markets called stock exchanges, kind of like a giant marketplace for slices of pizza. You can buy and sell shares through a broker, who helps make the transactions happen.
So, owning shares means owning a piece of a company, which can come with perks like voting rights and dividends, and it can also be a way to make money if the company does well.
These shares, if the companies are listed on the stock market, are openly traded. There are two exchanges in India, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). These are the only two open market places where one can buy and sell their shares.
In simple words, let’s imagine a big marketplace where people buy and sell pieces of companies. This marketplace is called a stock market.
Functions of stock market:
Buying and Selling: Just like you might buy a toy from a store, people buy and sell shares (or parts) of companies in the stock market. When you buy shares, you own a small piece of that company.
Company Shares: Imagine each company is like a cake, and the shares are slices of that cake. When you buy a share, you’re getting a slice of the cake. The more shares you have, the more cake you own!
Price Changes: The prices of shares go up and down depending on how many people want to buy or sell them. If lots of people want to buy a share, its price goes up. If lots of people want to sell, the price goes down.
Market Index: Think of this like a big scoreboard that shows how well the stock market is doing. It’s like checking the score of a game to see who’s winning.
Rules and Safety: Just like in a game, there are rules to make sure everyone plays fair. The stock market is regulated by rules to keep things safe and fair for everyone involved.
So, a stock market is basically a big place where people trade pieces of companies, hoping to make money as the companies grow and do well.
The key is to buy shares of companies whose businesses you understand well. Buying something you don’t understand will give you sleepless nights. The entire goal of stock markets is wealth transfer. It can either be to your pocket or from your pocket.
[The writer possesses a fascination with the world of business and the intricacies of stock markets]
