Last Updated on February 10, 2024 by asifa
The rags-to-riches stories of ace investors have inspired many people to invest in the stock market. Although Indian stock markets have grown in popularity, many investors are unaware of their volatility. Some investors see the stock market as a way to get rich quickly, while others fear the horror stories about investors losing 50% of their portfolios. Due to this, investment sentiment fluctuates between fear and greed.
There is more to share markets than rising and falling stock prices. There are risks involved in investing in the stock market. However, it is one of the most effective ways to accumulate wealth when approached with discipline. To familiarise the share market’s nitty-gritty details, let’s understand how it works, its types and how to start trading in the share market.
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Understanding Share Market
A share market is a place where buyers and sellers trade publicly listed shares at specific times. Shares represent fractional ownership of a company. By investing in shares, you are putting money into the company. As the company grows, your share price will increase. It is possible to make a profit by selling shares on the market. By investing in shares, you can finance your dreams, such as higher education, a car, a house, etc.
There are several factors that affect share prices. Prices can fluctuate from time to time. However, a long-term investment will mitigate the price drop. In order to trade shares, you need to open a demat account. When you are new to share markets, it is important to understand what is demat account and what it does.
How Share Market Work?
Companies list themselves on the secondary or primary markets in order to raise funds or capital. A company must provide information about its business, its financial status, and its IPO (initial public offering).
Once stocks are listed on the secondary market, investors can trade them. The majority of trading occurs in the secondary market. In this market, traders and buyers conduct transactions to make a profit or cut losses. There are thousands of investors, so people turn to stock brokers to extend the coverage of the fund. After receiving the order, they send it to the exchange. When the exchange finds a seller, it sends a confirmation to the broker, who debits/credits your account.
As shares are traded, their prices change. Like any other good, shares are priced according to their perceived value. In turn, this causes the stock’s demand to rise or fall. As the stock’s demand increases, more buy orders are placed. The stock price increases as a result.
Types of Share Markets
In the share market, there are two types:
1. Primary Share Market
The first time a company registers, it enters this market. Its shares are traded among participants in the market.
2. Secondary Share Market
After the company’s securities are sold on the primary share market, they are traded on the secondary share market. The market price determines the price at which investors can sell and buy shares.
How to Trade in the Share Market?
Follow the below steps to trade:
Step 1: Open a Demat and Trading Account
Investing in the secondary market requires a trading account and a demat account. Both accounts should be linked to an existing bank account for seamless transactions.
Step 2: Select the Shares
From your stock market app, select the shares you wish to sell or buy. You must have the funds in your account to purchase those shares.
Step 3: Select the Price Point
Choose the price at which you will purchase or sell the share. Wait for a response from the buyer or seller.
Step 4: Complete the Transaction
The stock transaction ends with either the exchange of shares or money for the stock.
Time investment is crucial to reaching your financial goals, so pay attention to how much time you spend investing.
For investors, the share market provides an exciting opportunity to participate in the development of companies and grow their wealth. In order to navigate this financial world effectively, you have to understand fundamental concepts such as primary and secondary markets, demat accounts, and how trading works, etc. Even though the share market can lead to financial success, it comes with risks that require discipline and long-term thinking. By investing wisely and staying informed, an individual can achieve financial success over time through the share market.