Very basics about how share market and trading works

Why a company issues shares

Consider a company wants to rise a huge capital for its expansion plan. The company calls the public to invest in the company. Public is nothing but you and me. If anyone is interested in the company they invest and become a partner. For example shares certificates of value Rs 10 each will be issued to investors. Share certificates are physical papers mentioning the details of company and share holder. Now a days these share certificates are in electronic forms called DEMAT. If you invest Rs 10000 in the company. You will get 1000 shares in your name. Thus the company will easily rise crores of Rupees from the public. By issuing the share certificates to the investors in their names the company is accepting them as a partner.

Commitment of the company towards share holders

Even if you buy one share of Rs 10 for a company the company is bound to inform you about its financials. You will receive periodic mails from the company about the financial performance and invitations to their annual general meetings, selection of board of directors etc. You are eligible to participate in the decision making process of the company.

Why people invest money in company

When the company makes profits, the board of directors decides how much profit should be distributed to share holders. This is called dividend. You will get dividend proportionate to the number of shares you have. At the beginning while investing in the company you bought each share at Rs 10. These shares are traded in the share market, so as time passes the price will increase or decrease depending on the companies performance. When the company performs well the share price increases, say in 6 months time each share may increase to Rs 120. This results in a gain of Rs 110 per share. If you have bought 1000 shares you make a profit of 110000 if you sell them in the market at this time.

What is share market

When a company asks the public to invest money initially it is called Initial public Offer (IPO). After enough investors buy the shares and when the target is reached the company stops issuing shares. So no more new shares are available. Now these shares are traded in stock exchanges like NSE, BSE etc, which is called the secondary market. The existing share holders can sell their shares in these stock exchanges. If the company is performing well day by day, more and more people would want to buy the share. Seeing this demand the existing share holders sell their existing shares at a higher price and make profit. Like this the shares will be continuously traded in the share market and the demand and supply will decide the price of share.

What is needed for share trading

You need to have a trading and DEMAT account with a share broker to start share trading. There are brokers who even offer free account opening. You can start buying shares with as little as Rs 100. Many options are available to execute buy and sell shares in your account. You can call your broker and ask him to buy/sell, you can do it online using the online user interface provided by broker, you can watch the live market action and buy online.

Age, profession, gender and education is not a barrier in entering the financial market. Warren Buffet, worlds celebrated richest share market investor, started investing in shares at the age of 11. You can start playing in the stock market even while at high school. Exposure to stock market early in life will help you study the market movements well, which will help you take better investment decisions latter in life. Even if your age is more than 60 now, it is not late for you to make serious investment in share market. The emotional balance you gained over the years will help you overcome the fear & greed factor you get looking at the moment to moment price change in the market. There is something in the share market for all age group. Because desire for wealth creation is not restricted to age. Learnandinvest
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