What Is the Stock Market? A Beginner's Guide

What Is the Stock Market?

The stock market is a marketplace where shares of companies that are publicly listed are bought and sold. When you want to buy shares of any company, you cannot walk into that company or visit their website and buy it. So, companies make their shares available in the stock market for buyers to buy.

Now, buyers buy these shares from sellers through the stock market. When a buyer buys a share, he/she is purchasing a small ownership stake in that company.

How Does It Work?

Companies need money to grow their business, whether it is to build new plants, buy machines, develop new products or expand into new markets. Instead of borrowing from banks, they can raise funds from common people. They do so by selling shares to the public through an Initial Public Offering (IPO). Once listed, these shares trade on stock exchanges.

If the company performs well, its overall valuation increases and so does the value of the bought share. Apart from an increase in share value, the company may also give away a part of its profit in the form of a dividend.

In case the company is not doing well and if its valuation decreases, the value of the share also decreases.

Indian Stock Market

India has stock exchanges, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE was established in the year 1875 and is the oldest stock exchange in Asia. On the other hand, the NSE, founded in 1992, is the largest exchange of India by trading volume. Both these exchanges are regulated by the SEBI (Securities and Exchange Board of India). The role of SEBI is to ensure fair and transparent trading.

Important Stock Market Terms

Below are the commonly used terms in the world of stock market,

• Shares or Stocks - Units of ownership in a company
• Stock Exchange - The platform where shares are traded (BSE and NSE in India)
• Sensex - Benchmark index of BSE, tracking 30 major Indian companies
• Nifty 50 - Benchmark index of NSE, representing 50 leading Indian companies
• Bull Market - When stock prices are rising
• Bear Market - When stock prices are falling
• Portfolio - The collection of all your investments

How to Buy and Sell Shares in Indian Stock Market

To buy and sell shares and to hold them, you need two accounts, namely,

• Trading account to buy and sell shares
• Demat account to store the purchased shares

Below is the process,

• Open a Demat and Trading Account - You will need both accounts with a registered broker like Upstox
• Complete KYC - Submit your PAN (Permanent Account Number) card, Aadhaar card, bank details and photograph for Know Your Customer (KYC) verification.
• Link your bank account – To buy shares, link your bank account to your trading account.
• Research and select shares - Research companies, check their financial health and decide what to buy.
• Place your order - Enter the company name or code, specify the number of shares and choose between a market order (buy at the current price) or a limit order (buy at your specified price).
• Monitor and Sell - Track your investments through your app or website. When you want to sell, the process is like buying.

The shares that you have bought gets stored in your Demat account. When you sell them they get removed from the Demat account.