Basics of Stock Market – Things you must Know!

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Basics of stock Market : Stock market is the place where one can buy/sell shares. In other words, the stock market is the place for exchanging shares of firms. Stock market transactions take place on official exchanges and in over-the-counter (OTC) markets that adhere to a predetermined set of rules. The terms “stock exchange” and “stock market” are frequently used interchangeably. The New York Stock Exchange (NYSE) and the Nasdaq are two of the most significant U.S. stock exchanges. This blog will give you a basic guide for the stock market, how it works and can one make investments as a beginner. Let’s know more about this, but before that let know why you as an aspirant should read about the basics of stock market.

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How stock Market basics can help you?

As an aspirant when you might be appearing for various exams, and if you appear basically for banking related exams, then knowing about stock markets helps you in many ways.

  • Helps you in answering questions related to stock market in the exam
  • Makes you good at managing finances
  • Once you are selected as a banker, theses basics of stock market will make you a better banker.
  • You develop better sense of investment and market indicators.
  • Knowing about stock markets makes you confident while answering the questions related to stock market in the interview.
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Basics of stock Market

Let us discuss some important things about the stock market.

What drives the market?

A small portion of a publicly traded firm is what you buy when you buy stock in it. You may be familiar with the New York Stock Exchange or the Nasdaq, two of the exchanges that make up the stock market. An initial public offering, sometimes known as an IPO, is a procedure whereby companies list shares of their stock on an exchange. These shares are bought by investors, enabling the corporation to raise capital for corporate expansion. Following that, investors can trade these equities among themselves.

The greatest price that buyers are willing to pay, known as a “bid,” is typically less than the price that sellers “ask” for in return. The bid-ask spread is the name given to this disparity. A buyer must raise his price or a seller must lower hers in order for a trade to take place.

Even though it may seem hard, the majority of price computations are typically performed by computer algorithms. When purchasing stock, you may view the bid, ask, and bid-ask spread on your broker’s website. However, in many circumstances, the difference will only be a few cents, so novice and long-term investors won’t need to worry too much. The Securities and Exchange Commission (SEC) of the United States is responsible for overseeing the stock market. The SEC’s mandate is to “protect investors, ensure fair, orderly, and efficient markets, and facilitate capital formation.”

In the past, stock transactions probably happened in a real-world marketplace. The stock market operates electronically these days thanks to the internet and online stockbrokers. Each trade is conducted stock by stock, yet due to news, political developments, economic reports, and other causes, overall stock prices frequently move together.

Here is Full Guide for Stock Market Investment 

The Stock Market can be difficult as a beginner. Before starting research, do your homework, understand and create a strategy of your own that will help you make profit. Here are a few ideas to keep the outcome.

1. Make your investment more diverse.

A diverse portfolio is a good portfolio. You won’t get a steady stream of cash when an investment goes down if it comprises the majority of your portfolio. To offset the low points of one asset class, financial gurus suggest adding additional asset classes. 

Bonds and other debt instruments are commonly used to balance equity investments. A portfolio with this level of equilibrium can protect its owner at a period of market crisis.

2. Recognize your investor profile.

You might find it helpful to use your investor profile to choose the instruments that best suit your degree of risk tolerance. This makes it possible for you to confirm that the degree of risk you are accepting is suitable for your way of life.

3. Outline a budget plan

Investment without proper financial strategy is risky. Make an investment plan so that you will be backed at time of need. Create a plan of your income and your investment. Once you invest you may need time to generate from those shares, so keeping your income steady during that period is important. There are two different stock markets: primary share markets and secondary share markets, which you should be aware of if you wish to invest in stocks.

How to Start Investing in Stock Market 

Buying shares on the primary market

Buying or investing in major stocks are done through IPO, a company will allot shares in accordance with supply and demand. This is done based on the IPO receipt in all investor applications. To do this, one must have a Demat account also with electronic copies. This is in order to make investment in any primary or secondary market. A trading account is also necessary because it will facilitate online share purchases and sales.

Purchasing shares on the secondary market

The secondary market purchase means just simply buying and selling any shares is called investing or trading in the secondary market.  

Step-by-Step Guide for stock market investment

Step 1: Create a trading and Demat account.

Start investment in a secondary account by creating a trading account and demat account. Have your existing bank account to these accounts. This will allow you to perform a smooth transaction.  

Step 2: Choosing the shares.

The first thing is fund to account to buy any shares. Once your account is funded you are ready to make purchase. Once you enter a trading account choose shares that you are well aware of to buy and sell.

Step 3: Choose the price range

As per your requirement, create a financial plan which means you need to set a price. In that particular amount you need to buy/sell any share. Once you set price wait until the buyer/seller responds.

Step 4: Complete the transaction 

Once this is completed you will be paid in cash or share. This is determined by whether you buy/sell the share

Keep in mind both the amount of time you intend to keep your investments in place and the financial goals you aim to achieve with them.

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What Can You Invest in the Stock Market?

The following guide for the stock market, which consists of main financial products in it and how to make the best out of it.

Equity shares: These are issued by businesses and provide you the right to receive a claim to any income the business pays out as dividends.

Bonds: Governments and corporations issue bonds as collateral for loans that investors provide to the issuer. These have a fixed interest rate and term when they are issued. They are also referred to as debt instruments or fixed income instruments as a result.

MFs (mutual funds): MFs, which are issued and run by financial institutions, are ways to pool funds that are subsequently invested in various financial assets.

The investors receive a percentage of the investment profits in accordance to the number of units or investments they own. These products are referred to as “actively” managed since a fund manager makes decisions about what to buy and sell on your behalf in order to produce returns that are higher than the benchmark (like the NIFTY).

ETFs (exchange-traded funds): ETFs, which are becoming more and more popular, simply follow an index like the NIFTY or the SENSEX. A purchase of a single unit of an ETF makes you owner of 50 equities and it makes up the NIFTY that weighs the same as NIFTY.

It’s called “passive” products, it’s significantly less expensive than MFs, and also this provides you with the same risk and return characteristics as the index.

Derivatives: A derivative’s value is derived from how well an underlying asset or asset class has performed. Commodities, currencies, stocks, bonds, market indexes, and interest rates are just a few examples of these derivatives.

Bottom Line

It can be intimidating for beginners to learn how to invest in stocks, but it really just involves deciding which investment strategy you want to use, what kind of account makes sense for you, and how much money you should invest in stocks.

Basic Terms related to Stock Market

Find the table below for all the basic terms used in stock market.

TermMeaning
BuyThis means buying shares or taking a position in a company.
SellGetting rid of the shares as you have achieved your goal or want to cut down losses.
AskAsk is what people who are looking to sell their stocks are looking to get for their shares
BidBid is what you are willing to pay for a stock.
Ask-Bid SpreadSpread is the difference between what people want to spend and what people want to get.
BullA bull market is a market condition where investors are expecting prices to rise.
BearA bear market is a market condition where investors are expecting prices to fall.
Limit OrderA limit order is a type of order which executes at the price placed for buy or sell.
VolatilityThis means how fast a stock moves up or down.
CapitalizationThis is what the market thinks a company’s value is.
IPOIt is an Initial Public Offering that happens when the private company becomes a publicly traded company.
DividendPortion of the company’s earning which is paid to the shareholders.
BrokerA broker is a person who buys or sells stocks on your behalf.
PortfolioA collection of investments owned by you.
MarginA margin account lets a person borrow money from the broker to buy shares.
SEBISecurity and Exchange Board of India
Sensex or Sensex 30Sensex is BSE’s flagship index.
Nifty or Nifty 50Basket or collection of the 50 largest most active stocks listed on NSE
BSEBombay Stock Exchange is the oldest stock exchange in India.

This is all from our side in this blog. Stay tuned to Oliveboard!

Basics of stock market FAQs

What is a Share market?

A share market is where shares are either being sold or bought.

How can I start investing in Stock Market?

You can start investing in stock market by opening a Demat Account.

What is the minimum amount of money that you can invest in Stock Market?

The minimum amount depends upon the price of share of a particular company.

In India, who regulates the stock market?

In India, SEBI regulates the stock market.