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4 things you need to know if you wish to invest in the share market

Author: Maithili Pawar
by Maithili Pawar
Posted: Sep 19, 2019

Share trading has become very common today. More and more young and old investors are opting for share market investments as opposed to investing in bank or post office fixed deposits. This is attributed to the fact that trading in shares allows you to create a corpus at a much faster pace as opposed to conventional investment options. With adequate knowledge and research, you can invest in a wide range of shares and stocks that can help you fulfil your many financial goals. But before you start with your investments, you need to know about stock market basics in India. Here are 4 things you should know about investing in the share market.

1. The difference between stock and share market and the introduction of BOLT

Share market and stock market is essentially the same thing. Both terms are used to refer to the gathering of traders – buyers and sellers of on a single platform. Before the introduction of the Bombay Stock Exchange’s screen-based trading platform, the BSE-On-line Trading or BOLT in the year 1995, trade was conducted by brokers by physically standing in the trading ring. However, with the advent of the digital age and online trading platforms, trades can be conducted on computer terminals set up in the offices of stock brokers.

2. Difference between primary and secondary markets

Any private company wishing to raise funds publicly must undergo a process to be become a publicly traded company. For this, such companies need to launch an initial public offer or IPO. This IPO is launched in the primary market and interested investors must apply for the IPO in advance. Once the IPO is launched, the company gets listed on the secondary market. It is on the secondary market that share trading happens publicly. Investors can purchase and sell shares easily and conveniently (through online demat accounts) without having to fill any forms (like in the case of IPO) in secondary markets.

3. Determination of share prices

The price of the share is determined by the market based on the demand and supply ratio. Typically, the prices of shares increase at a faster pace when a company is growing at a quicker pace or earning good profits. Share prices also increase as the interest in the share among investors and the demand for the share increases. On the other hand, share prices fall when the demand for a share falls.

4. Meaning of Stock Indices

There are more than thousands of companies that are trading shares publicly on the two main Stock Exchanges in India – The Bombay Stock Exchange located in Dalal Street, Mumbai and the National Stock Exchange Indian, located in New Delhi. Out of these, an index is formed by grouping a few similar stocks together. The classification of the grouped stocks is done on the basis of several common factors such as size of the company and the industry it belongs to, market capitalization and other such factors. This is known as stock Index.

The stock index of the BSE is determined by including 30 top-performing stocks from financially stable companies where as the stock index of the NSE is determined by including 50 top-performing stocks. Other stock exchanges in India include sector indices such as Bankex and market cap indices such as BSE Midcap and BSE Small cap.

Knowing the stock market basics is important for all investors. This information helps you understand the best performing companies on Nifty (linked to NSE) and Sensex linked to BSE. You can also make informed investment decisions that can ultimately help you fulfil your investment objectives.

About the Author

Maithili Pawar is a finance professor. She has written on share market basics. Through this article, she has provided detailed information on stock market.

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Author: Maithili Pawar

Maithili Pawar

Member since: Jul 21, 2019
Published articles: 16

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