scorecardresearchExplain Like I'm 5: What is a share market?

Explain Like I'm 5: What is a share market?

Updated: 26 Apr 2022, 03:11 PM IST
TL;DR.
Investing in the stock market is considered daunting and risky. Equipping oneself with the basic rules of stock market trading can help you make investment decisions in a rational and pragmatic way. Read further to know more about it.
The stock market, also known as the share market, facilitates the exchange of shares between buyers and sellers.

The stock market, also known as the share market, facilitates the exchange of shares between buyers and sellers.

The stock market, also known as the share market, facilitates the exchange of shares between buyers and sellers. Several companies list out a fraction of their ownership in the form of stocks/shares in the stock market.

The buyers purchase those shares from other shareholders or directly from the company (during an IPO). The purchase of stocks of a company indicates that the buyer is buying some part of that company.

What are stock indices?

India has two very important stock exchanges, namely the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). With BSE, nearly 5,400 companies are registered and around 1700 companies are registered with the NSE.

All the shares have their respective prices and there are institutions to keep a regular check on fluctuations in such share prices. There are two indices, Sensex and Nifty, that reflect the price movement of some key stocks.

Sensex is the Sensitivity Index that gives the average value of share prices of the top 30 companies in BSE. On the other hand, NIFTY, also known as National Fifty, gives the average value of share prices of the top 50 companies in the NSE.

What are primary and secondary markets in the stock exchange?

If a company is listing its shares in the market for the first time, it is called Initial Public Offering (IPO) which falls under the primary market. Further, such shares enter the secondary market for trading ahead.

Besides, the primary market is the one where the price of shares solely depends on the demand in the market. Investors can buy the shares of a company and choose to sell them further to others.

How does one buy or sell stocks?

Long ago, investors had to physically visit the BSE to buy stocks. Now in the technology-enabled world, the internet has made everything easy and convenient. Thus, a buyer only needs to have access to three accounts to buy stocks - bank account, trading account and demat account.

A bank account is needed for money, a trading account for the purpose of trading and investment of money in any company, and a demat account to store the stocks that one has purchased in the digital format.

The above-mentioned information is the preliminary guide to the stock market trading. This is the minimum knowledge one must have in order to invest in it.

However, it is advised that the investors carry out a thorough research of the companies, the stock exchanges, and fluctuations in the stock prices prior to making an investment.

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First Published: 26 Apr 2022, 03:11 PM IST