What is share market?
Imagine you want to buy vegetables. You go to your local vegetable market, choose your vegetable, enquire about its price, and attempt to bargain with sellers by quoting your own price. If both you and the seller agree on a rate, the purchase is finalised.
The share market, or stock market, works in a similar manner as your local market. It is a marketplace where buyers and sellers come together to make a transaction. Instead of vegetables, they trade shares, which represent ownership in companies.
Types of share markets
Now that you know the share market meaning, let’s understand its types. The share market can be classified in two different ways. One way to classify it is in terms of regulation, and the other is based on utility. Let’s look at both ways:
1. Based on regulation
Listed markets are regulated markets where companies are listed. The markets follow a few set rules and protect the rights of their buyers. Listed markets are transparent. For instance, think of how in the vegetable market, the local mandi association sets some rules that every seller must follow. This way, you can feel safer while purchasing vegetables since the seller must abide by these rules.
Shares of unlisted companies are traded on unlisted markets. These markets are opaque and carry relatively fewer rules and regulations than listed markets. Instead, these markets largely operate on trust and networking. Think of a vegetable market that does not have a mandi association to set rules. You can still buy vegetables but cannot lodge a complaint as easily in case the seller dupes you.
2. Based on utility
Primary markets are where companies wanting to raise money come to sell their shares. Companies usually have a predetermined number of shares that they wish to sell. Both institutional and retail investors come to buy these shares. Initial public offering (IPO), and follow-on public offering (FPO), are some of the words associated with primary markets.
Once an investor acquires the shares of a company in the primary market, those shares can be further traded in secondary markets. In these markets, the trades take place mostly between buyers and sellers themselves. A company is only involved in secondary markets during buybacks. Secondary markets are the largest segment of the stock market.
What is traded in the share market?
Even though the local vegetable market has ‘vegetable’ in its name, you may also find people selling fruits, snacks, etc. Similarly, though the share market has ‘share’ in its name, several kinds of securities are traded in it.
A share simply represents your ownership in a company. If a company has 100 outstanding shares and you own 51 of them, you own 51 percent of the company and become a majority holder. A majority shareholder has the right to vote on how the company operates, who can be in the top management, and have a voice in other company decisions. When a shareholder buys or sells shares, they trade their ownership as well as all their rights in that company.
Bonds are a kind of loan that companies take from investors. In return, the companies pay investors interest at different intervals. These bonds can further be traded among investors in share markets.
Exchange-traded funds, or ETFs, are securities that track an index, commodities, bonds, or a basket of assets. ETFs can also be traded on the share market.
Derivatives are products traded in the stock market that are based on an underlying asset, which can be a stock, an ETF, or a commodity.
How can you invest in the share market?
You need three things to invest in the share market – a bank account, a trading account, and a demat account. All three need to be linked to each other for a seamless trading experience.
A bank account is where you can hold your money for safekeeping. You can utilise the money in your bank account to purchase shares as well as to store money after you sell shares.
A trading account is a gateway to the stock market. You can open a trading account with any registered broker and start trading.
Finally, a demat account is where you can digitally store your shares and bonds.
Once you have opened all three accounts, you need to log into the trading account to access the stock market. Search for the stock you want to buy and place an order. If there are sellers available for that stock, the order will be fulfilled.
Q. How much money can I make in the share market?
Making money in the share market is dependent on several factors, including how much capital you invest, the state of the share market, economic conditions, etc. However, you should keep your expectations in check as it takes time to make money in the stock market.
Q. Can I lose my money in the share market?
Yes. Like trading in any assets, trading in the share market comes with its risks. It is important to carefully research the stock that you are buying or selling to minimize this risk.
Q. Can I invest Rs 10 in the share market?
Yes. There is no minimum limit to how much you can invest in the stock market. You can even buy shares for less than Rs 10.
For the sake of convenience and utility, market participants divide publicly traded companies into three broad categories – small-cap stocks, mid-cap stocks, and large-cap stocks. Small-cap stocks are those stocks that have the lowest market capitalisation among listed companies
In the stock market, beta is a measure of a stock's volatility in relation to a benchmark, such as the Nifty, where Nifty is often assigned a beta value of 1.