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A BEGINNER’S GUIDE TOTHE STOCK MARKET
Investing in the stock market can seem fearsome, especially
during the beginner’s phase because of the complexity and the
risks involved in the market. But a careful understanding can
guide you through the right path in your nurture stage.
Here is brief guide that will help you in your investing journey.
What is a Stock Market?
1. The stock market refers to public markets that exists for issuing, buying, and selling
stocks that trade on a stock exchange or over the counter. Stocks, also known as
equities, represent fractional ownership in a company, and a stock market is a place
where investors can buy and sell ownership of such investable assets.
2. The two primary stock markets in India are the National Stock Exchange (NSE) and
the Bombay Stock Exchange (BSE). The NSE is by far the largest, with over 90% of
cash trades.
3. All activities as well as participants of the stock markets including day-to-day trades,
instruments being traded, exchanges that enable the financial instruments to be
traded, are regulated by the Securities and Exchange Board of India (SEBI).
4. The most common indices in India are the NIFTY and SENSEX. NIFTY is a basket of
top 50 stocks by market capitalization listed on the NSE. The SENSEX is a similar
index of 30 companies listed on the BSE.
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What is the purpose of the Stock Market?
The stock market serves two very important purposes:
1. The first is to provide capital to companies that are listed in the stock market so that
they can use it to fund and expand their businesses.
, Like- If a company issues one million shares of stock that initially sell for $10 a share,
then that provides the company with $10 million of capital that it can use to grow its
business.
2. The stock market serves to give investors – those who purchase stocks – the
opportunity to share in the profits of publicly-traded companies.
Like- if an investor buys shares of a company’s stock at $10 a share and the price of
the stock subsequently rises to $15 a share, the investor can then realise a 50%
profit on their investment by selling their shares.
How to invest in the Share Market?
You cannot buy or sell directly on the stock market. For this, you must go through brokers
who are authorised to trade on the market or stock brokerage companies that allow you to
trade using their platform. The process is simple:
1. To begin investing, you must open a trading account with a broker or a stock
brokerage platform. A trading account is where you actually “trade” or place buy or
sell orders.
2. The broker or the stock brokerage platform opens a Demat account for you. A Demat
account holds the financial securities in your name.
3. These two accounts are then linked to your bank account.
4. To open a trading and Demat account, you need to provide Know Your Customer
(KYC) documentation that includes verification via government-authorised identity
cards such as the PAN card or your Aadhar.
5. Most brokers and brokerage platforms now have an online KYC process that allows
you to open an account in a couple of days by submitting your verification details
digitally.
6. Once open, you can trade with your broker or brokerage company online via a portal
or offline via phone calls.
How does the Stock Market work?
The concept behind how the stock market works is pretty simple:
1. The stock market lets buyers and sellers negotiate prices and make trades.
2. You may have heard of the Bombay Stock Exchange or the BSE. Companies list
shares of their stock on an exchange through a process called an initial public
offering or IPO.
3. Investors can then buy and sell these stocks among themselves, and the exchange
tracks the supply and demand of each listed stock.
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