Hello
readers, we are happy to announce that our team of MoneyWiseMind.com launched a
new section "𝐈𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬: 𝐖𝐞𝐞𝐤𝐥𝐲 𝐐&𝐀 𝐅𝐨𝐫 𝐒𝐭𝐨𝐜𝐤 𝐌𝐚𝐫𝐤𝐞𝐭 𝐍𝐞𝐰𝐛𝐢𝐞𝐬", to spread the basic stock
market knowledge to the beginners.
This is your go-to
resource for demystifying the stock market from the scratch. Each day, we will
present 10 carefully curated questions with answers that will cover essential
concepts, strategies, and terminologies. Whether you have just entered into the
market, or trying to starting your stock market journey, or looking to
strengthen your foundation, our weekly post will guide you through the basics
and beyond, making investing accessible and understandable for everyone. Happy
reading.
Day 1: Basic Stock Market Concepts
1. What is the Stock Market?
The
stock market or share market is a marketplace where investors buy and sell
shares of publicly traded companies.
There
is a little difference between the stock market and share market. A share
market is a place where the shares of companies are Traded. Stock market
allows individuals to trade in different instruments like shares, bonds,
derivatives, mutual funds of a Company. On the other hand, share market allows
traders to trade in shares only. It operates through exchanges, such as the New
York Stock Exchange (NYSE) and NASDAQ in USA. In India, Bombay Stock Exchange
(BSE) and National Stock Exchange (NSE).
2. What is a Stock?
A
stock represents portions of ownership in a company. When you buy a stock,
you purchase a piece of the company and become a shareholder, entitled to a
portion of the company's profits and assets. For example, one can say that he owns
stock in Reliance Industries. Shares actually quantify the ownership of stocks.
It refers to the units of ownership in a certain company. For example, one can
say that he owns 100 units of Reliance Industries shares.
3. How do you Buy Stocks?
You can buy stocks through a demat account (dematerialized
account) registering with a brokerage firm guided by a regulatory authority. After
setting up the account, you can place orders to buy or sell stocks via the
brokerage's trading platform, which connects you to the stock exchanges.
4. What is a Stock Exchange?
A stock exchange is an organized marketplace where stocks and
other securities are bought and sold. Examples include the NSE, BSE in India, and
NYSE, NASDAQ, and London Stock Exchange (LSE).
5. What is a Stock Broker?
A stock broker is a licensed professional or firm that
facilitates the buying and selling of stocks and other securities on behalf of
Investors through a stock exchange. They earn commissions or fees for their
services.
6. What is a Dividend?
A dividend is a portion of a company's earnings distributed to
shareholders. Companies typically pay dividends quarterly, and they can be in
the form of cash or additional shares of stock.
Dividends of companies are decided by the board of directors
with the approval of the shareholders.
Dividends are calculated in the following way: Dividends per
share=Total dividends÷ Total shares outstanding.
7. What is Market Capitalization?
Market capitalization, or market cap, is the total value of a company's outstanding shares of stock. It is calculated by multiplying the current stock price by the total number of outstanding shares.
Here is an example: Suppose MC =Market Capital, N=Number of
outstanding shares, P=closing price of per share of the concerned company.
Formula is MC=N×P. If a company has 20,000 shares, closing price of each share
is Rs.200, then the total market capitalization of the company will be
MC=N×P or MC= 20,000×Rs.200=Rs.4000000.
8. What is a Bull Market?
A bull market is a period of rising stock prices, with the major stock indexes are rising consistently with market making new highs, often driven by investor optimism, economic growth, and strong corporate earnings. It indicates a positive market sentiment over a sustained period of time. When a stock market is increased by 20% or more for a longer than 50 to 60 days we consider it a bull market.
9. What is a Bear Market?
A bear market is a period of declining stock prices, a downward trend in financial markets marked by lack of confidence among the investors. A market is considered as a bear market when it is corrected more than 20% from recent highs. It is associated with investor pessimism and economic downturns. The duration of a bear market can be as short as few weeks or as long as several years.
10. What is an Initial Public Offering
(IPO)?
IPO stands for Initial Public Offerings. An IPO is the process by which a private company becomes publicly traded by offering its shares to the public for the first time. This allows the company to raise capital from a broader investor base to infuse capital for the development and extension of the company.
IPO is a great opportunity to the investors to earn profits from
investing in IPO. But not all IPOs are winners. It's a healthy sign for the
market and economy if there are large numbers of IPOs are coming into the market.
If you have any other questions in your mind
relating to stock market basics or need any clarification, please put your query
into the comment box, We will try our best to clarify the same.
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
