Stock market 101: What is stock market and how it works?

            When i first started to invest many people cautioned me that it’s not wise choice to invest in share market because it’s highly risky and some told me it's only for wealthy peoples. In India still many thinks that one should have more money and abundant knowledge to invest in stock market. Sure, i agree knowledge plays vital role but even with basic knowledge and small amount of investment you could play safely and make enough money from stock market. Let’s say you are earning monthly 20000, from this 10% is rs.2000 it’s more than enough, because stocks are available from price of rs 0.05 (5 paisa). So, it’s convenient for all peoples to consider this option and, over a period they could convert this as one of their passive income. In this i will try my best to explain briefly about stock market, without further ado let’s get into the topic.

First, i want to answer the big question of what is share market? 

             It’s the place where you could buy and sell stocks. For an easy understanding am taking equity market (Trading Share of companies) as an example. If any firm need money to expand their business or to pay their loan or whatever their need, they could go for fund rising from other investor and Otherwise they could also take their company to public by Initial Public Offering (IPO) and list it in exchanges ( National Stock Exchanges & Bombay Stock Exchange ). By this they could sell part of their shares to public peoples and firm will make money proportionate with percentage of share they are selling. Once it’s done it will be listed on exchange. Then you could buy and sell their shares whenever you want and where it takes place is called share market.`

If you wonder How you could buy shares of company! Here I am.

First, it’s mandatory for all to open a dematerialized account (Demat account) from stockbrokers and they operate inter-mediator and do all document work for us. Almost all banks ( HDFC, ICICI, SBI, KOTAK etc.) will provide you demat account apart from that other discount brokers ( zerodha, upstox,5paise etc.) are available in this you have to decide based on your preference but for a beginner I could say discount brokers good to give a try. Because their charges are less when compare to others. Before opening account, you should check their transaction charge, delivery charge, and intraday charge. In my next blog i will address this in detail with pros and cons of all demat account provider.

Here it comes earning part and it’s much simpler to understand compare to all other things. You should Buy stocks when they are low and sell them when they are high. It’s not as easy as it sounds because you can’t do this on your conjecture, you should predict this one, by using their financial report, business model, news around that firm and market condition etc. In later blog i will explain in detail here i give you small example to understand price fluctuation. Due to this covid19 problem pharma industries saw big spike in their sales that increased their demand in market so share prices skyrocketed. In other hand all countries downed all flights that slashed stock prices of aviation firms to 50 to 80%. Few days before SBI posted their financial report in that their revenue increased 3 times then suddenly shares of SBI increased almost 20%. If you want to learn how news affects share price, i could say use Idea Vodafone share price fluctuation data with associated news with that. 

             How much you could earn it’s difficult to answer because that’s purely depends on how you are committed into this. let me share small detail here that will help you to understand potential of stock market and to convince yourself to invest or learn about stock market.     

            In above picture you could see share details of Ruchi soya. This stock was rs.3 in Jan 2020. In 6 months, it went rs.1020 still it’s going upward it will reach 1100 in near time.

            If you could have bought 1000 shares when it's 3 your investment value is rs.3000. If you sell them at price of rs 1000 then now you will get rs.1000000. In a six month your rs.3000 gave you 1000000.

            In this example you could clearly understand the potential of stock market and even less amount is enough for investment. So, you could choose stocks depends on your financial viability. But you can't expect this much of return from all stocks that you invest. But if you are good at picking stocks then often you could earn more than this.

            If you often thought of investing but never done that or you are new to this then I could say this is the auspicious time to consider investing in stock market, because now due to covid19 most of shares are trading below their intrinsic price. So, it's right time to learn even if you are wrong on picking stock you won't lose much and now most of Indian company share price are way down than their average price. So now it's high chances that in future the share prices will pull back from all-time low and you could make much money from that comparing with normal time.