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What is Share Market for Beginners?
Share market investments are a great avenue for wealth generation with a long-term goal in mind. In recent times, more and more people are looking towards the share market as a means to supplement their primary income channels and building a strong and diversified investment portfolio.
Published on 01 March 2023
However, as you may know, share market investment can be a risky proposition. Any market-linked investment is subject to the vagaries of the market and therefore needs careful study and consideration.
In this article, we will explain the basics of the share market for beginners. Read on to understand what the share market is and how can you can begin investing in the share market for long-term wealth building.
What is Share Market?
Shares are basically units of a company that can be traded publicly by traders and investors. Traditionally, a share or stock market was a marketplace where traders came and traded in the shares of different companies and stocks of various commodities.
With time, the share market developed into a formal marketplace where the share certificates of various ‘listed’ companies were bought and sold in exchange for money. Share certificates are the official documents that validate your ownership of a certain number of the company’s shares. Over time, multiple laws, guidelines and procedures were put in place to ensure safe, secure, transparent and lawful share trading practices.
Today, the share market is where shares of the ‘listed’ companies are publicly issued and traded, predominantly online. With the advent of digitisation, the share certificates were digitised and are now traded electronically. You need an online demat account to hold these shares and an online trading account to buy or sell these shares.
Know How to open a Demat Account Online
Share Market Basics for Beginners
Before investing in shares, it is vital for you to learn about the share market basics and how it works. Basically, it is where the shares of several major companies are publicly traded.
In our country, there are two primary stock exchanges; the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Now, the share market is divided into two parts; primary market and secondary market. Let’s see how are they different from each other.
- Primary Market:
Here, a company gets registered for issuing a certain number of shares in order to raise money. This is also often termed as getting listed in the stock exchange. The company enters the primary share market to raise capital. If the company lists itself in the primary market to sell its share for the first time, the process is called ‘Initial Public Offering’ (IPO).
- Secondary Market:
Once a company is able to sell its shares in the primary market, it can then trade in the secondary market. Here, the initial investors get the opportunity to sell their shares by exiting their investments.
In the secondary market, transactions mostly comprise of trades where an investor decides on buying shares from another investor at a dominant market price. And based on the prices that the two parties agree to set, one investor then buys the share from the other one in the secondary share market.
Typically, these transactions are taken care of by a broker.
How to Invest in Stock Markets? A Stock Market Guide for Beginners
We cannot jump straight to discuss investing in a share market without addressing the crucial financial instruments that are traded on it. There are 4 categories of financial tools which are traded on the stock exchanges; bonds, shares, derivatives and mutual funds.
Now, here are a few things to consider before investing in stock markets:
- Buy the Right Stock: This process is much easier said than done. It is easier to analyse the past performance of a share. However, anticipating their future performance is difficult.
So, if you are planning on investing in the shares of a particular company, spend some time analysing the market trends, the predictions for the particular share/company, technical and fundamental analysis of the company and so on.
- Slow and steady wins the race: If you are a beginner, avoid investing in individual stocks. There are a huge number of experienced traders and investors who are analysing the market for a living. It takes experience to develop an understanding of the market trends and movements.
Also Read: Learn Share Market Basics for Beginners
So, if you are a novice, start by investing in mutual funds or an Exchange Traded Fund (ETF). Eventually, you can start investing in safe, traditionally well-performing shares. Finally, with some knowledge and experience to back you, you can move on to individual shares.
- Do not have unrealistic expectations: Know that just because a friend or neighbour or relative hit gold with their first investment does not mean you will too. The market is an unpredictable place. Unrealistic expectations are bound to disappoint. Rather it is advisable to study the market and the share in detail and keep pragmatic expectations.
- Be Prepared for Losses: Continuing from the above point, you must remember that the share market can fluctuate, and losses can occur every now and then. So, be prepared well to be able to handle such losses.
- Start Now: There is no right time to invest in stocks or shares. Nobody is 100% aware of a time when investing in a share can have huge returns. Keeping that in mind, if you wish to invest, start now.
Conclusion
With that easy introduction to the stock market above, it might have become a little easier for you to chalk out an investment plan for yourself. Bottom line, investing in a share market can be rewarding if you know the processes and guidelines well.
As a beginner, you need to find an investment plan that will work for you and will stick to you through good and bad times.
