Stocks indicate the units of ownership in a company and the trading of stock includes the process of buying and selling these units in the stock market to fellow traders. Stock trading also involves buying and selling other financial instruments such as bonds, derivatives, etc.
How does stock trading work?
There are two national stock exchanges in India, namely the BSE and NSE. These exchanges provide the platforms where the shares of companies get listed for trading. Any investor who buys listed shares stands to get ownership in that particular firm in proportion to stocks purchased.
To be able to do the stock trading, the investor must first open a demat account and a trading account. An investor can hire services of a stockbroker registered with the markets regulator SEBI (Securities and Exchanges Board of India) to open demat and trading accounts.
A trading account is the one that is used to buy or sell the stocks whereas a demat account stores the stocks in a dematerialised form. So, as a trader uses a trading account to buy the shares, these units get credited to their demat account. Besides these two accounts, a common bank account is also required since the money has to be paid electronically at the time of purchase of stocks.
Why are stocks traded?
Most importantly, trading stocks is considered a tried and tested way of earning money i.e., high returns on one’s investment. In addition to high income, the investor also gets part ownership in the firm and also gets a small part of the company’s profits as regular income in the form of dividends.
When seen from the organisation’s perspective, the companies need additional capital to run their business in the long run. To garner additional capital, the firms invite the public to invest in the company by buying their stocks. This is how companies’ stocks are traded.
To summarise, we can say that stock trading can be lucrative but the investors must stay vigilant, stay abreast of the market trends, and wait for good returns in the long run.