Learning the stock market basics

stock market basics

Learning the stock market basics

Stock market is a place where people have made millions and also people have lost millions. No one on this earth likes to lose money and if you are looking to invest in share market then you should first get the basics right and then start investing in order to be make money in stock market.  If making losses upsets you then stock market is not your cup of tea, you should definitely stay away from investing in stock market.  This post is written with an aim to educate our readers about the stock market basics so that they can trade better.

What is a stock?

When the ownership of a company is divided into small parts then each part is called as a stock. A person carrying a stock of a company holds that part of ownership in a company. A person holding maximum stocks carry maximum ownership and are designated like CEO, MD, Chairman etc.

What is a stock market?

First of all let us understand the meaning of the word ‘Market’. Market is a place where buyers and sellers meet to sell a product or a commodity. There are different markets for buying different products or commodities. To buy vegetables there is a vegetable market, to buy cloths there is a textile market etc.  Similarly stock market is a place where the shares of publicly traded companies are issued, sold and bought. A person willing to trade shares in India can do it through exchanges or over-the-counter markets. In India there are two main exchanges NSE and BSE.

Stock market: Business or gambling?

Many people who are unaware of the stock market believe that stock market happens on gambling and the people who invest or trade stocks are gamblers, they think that they earn only based on luck. This is not true at all and the reality is totally different. The person who speculates the market and invests in stock without understanding the stock market then he is called to be gambling, but when a person analyses the movement of stock and before taking a buy call if he takes the support of technical or fundamental analysis then he is not gambling, he is doing a business.

Let us understand this with an example, here let us assume that you visited a casino and you are about to roll a dice. You have bought have paid 1000Rs to play the game, also if you win you get your 1000Rs+X Rs and if you lose, you will lose it all. This is not the case in stock market it’s like whether you win X amount or lose Y amount. Unless the company goes bust you will not lose all your invested money, this scenario is very rare.

What is an Index?

Index is a group of stocks which denotes the direction of the entire market. When someone says that market is going up or down that means the majority of stocks in the index are going up or down. In India there are mainly two indices Nifty for NSE which consists of 50 stocks and Sensex for BSE which consists of 30 stocks.

To get started with stock trading and to know ‘How to invest in stock market’ click here.

Types of market.

types of market

  • Primary market.

A place where companies, government and other corporate bodies sell new shares and financial products is called as primary market, here no trading is allowed. IPO happens only in primary market.

  • Secondary market.

All the stock trading happens in the secondary market, majority of stock trading takes place in NSE and BSE. After IPO as soon as the share gets listed on the exchange it can be traded from secondary market.

Till here we were discussing about the basic terms of stock market, now let us clear some doubts with regards to the functioning of the stock market. If you have some myths about stock market then get it cleared right away by clicking here.

Stock market is adversative.

There are millions of people around the globe who are involved in stock trading. The views and perception of all these investors vary and all have opposing views. When someone is willing to sell, there is someone who willing to buy that stock. In such scenarios both investors cannot be correct hence it would be correct to say that stock market is adversative in nature. One’s profit would be another’s loss. Trading with knowledge and discipline would make you a successful trader any day.

“One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute.” -William Feather

Why is stock market so volatile?

One of the major reasons why people fear investing in stock market because stock market is very volatile. No can predict the market movement and no one has the control over the stock market. Though it is not 100% possible to predict the market direction, it is possible to some extent using technical analysis.

Coming to the topic again, why is stock market so volatile? There are many factors in play which decides the market movements. Media, news related to company, natural calamities, political factors, performance of the global indices, supply and demand, and influencer opinion are to name few. All these factors as well as some domestic and global factors create a certain type of sentiment bearish or bullish. If there are more sellers than buyers than the stock prices tend to fall and vice-versa. In a nut-shell the only factor which controls the stock market is buyers and sellers.

Moreover the stock market is very unpredictable and no one on this globe can actually predict the market movement in long run. For eg. No one can predict what would be the Nifty or Sensex after 3 months.

To conclude.

Investing in stock market cannot be mastered unless and until you start investing. For beginners stock market can be a very complicated place. It would take some years to master the art of stock trading and investing. Trading with safety is highly recommended i.e putting stop-loss to the investments to minimize the losses. Investing with knowledge and discipline is the key to success to earn money in stock market. Moreover blindly believing stock market tips can also be a big mistake. EQSIS provides professional training in stock trading and analysis making you a professional in stock trading.

Article Info

Published Date: June 28, 2016
Author: Valarmurugan

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