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What is the Share Market?
The share market, also known as the stock market, refers to a market in which shares of companies that are publicly listed are bought and sold and traded. It is vital to the economy since firms need to raise capital to grow, innovate, and develop while investors desire an opportunity to benefit from the financial success of these businesses. With knowledge of the principles of a share market, people open themselves up to creating wealth and financial growth over time.
How Share Market Works
In the share market, companies divide their equity into shares that the investors can purchase as small fractions. When a person buys shares of a particular company, he or she owns a fraction of that company. Ownership lets the owner share the profits of the company and sometimes its decisions during yearly meetings, if every share or some of the shares are given voting powers. The values of stocks depend upon a range of variables, including company performance, market conditions, investor sentiment, and broad economic indicators.
Purchases and sales of shares happen on stock exchanges like BSE (Bombay Stock Exchange) or NSE (National Stock Exchange) in India. In the US, it’s the New York Stock Exchange (NYSE) and NASDAQ. The stock exchange arranges and offers a secured platform for trading. That provides a much safer place for transactions to take place.
Key Terms of the Share Market
Equity-Shares: Shares are ownership of a company. When any person invests in shares, then one becomes a shareholder of that company. Stocks are abbreviated as general ownership of shares about every company.
IPO: IPO is known as Initial Public Offer. IPO is when private businesses open up to the world so that their shares can go and raise capital from a range of investors.
Bull and Bear Markets: Bull market is that period of time wherein the stock prices are on the rise and investor optimism flourishes. A bear market refers to fall in the stock prices accompanied by diminished investor optimism.
Indices: The most leading indicators of the stock market are the Nifty and Sensex. Indices constitute a collection of major companies’ stocks, thus representing the general trend of the market.
The Share Market: Dividends: Profitable companies usually distribute a part of their income to the shareholders in the form of dividends.
Types of Investors in the Share Market
There are two types of investors in the share market, which are short-term traders and long-term investors. The former enters and exits the share market within one or a few days to seize the advantage of the offer of having high price fluctuations, while the latter purchases shares with the intent of holding them for several years so as to benefit from long-term growth and attract dividends.
Types of Share Market
The share market can be broadly classified into two segments:
- Primary Market: In the primary market, newly issued securities are first sold to investors. Companies raise equity capital through the process of new issuance by offering shares to the public through the IPOs.
- Secondary Market: The secondary market is that place where investors buy and sell shares which were issued earlier in the primary market. It provides the facility of interchanging shares between the investors on the stock exchange, thereby helping in liquidating the markets.
Benefits of investment in share market
Earning of wealth: Share market, in the long run, has given more returns than saving or deposit accounts.
Dividend Income: Most corporations declare dividends to their shareholders, thus creating an alternative source of income.
Liquidity: Equities are usually easy to come by and liquidate. Investors can get out of a position in case there is an emergency need for liquidation.
Inflation Hedge: The cost of equities inflation reflects better than any other investment, thereby ensuring the purchasing power of your wealth over time.
Risks Investing in the Share Market
While share market offers an excellent potential return, there also exist risks. Share prices may fluctuate due to change in the economy, performance of the industry, as well as company news and worldwide events. Therefore, investment in the short run will incur losses if investments have to be sold at times when the market is sliding. Hence, it calls for an advisable strategy and approach towards investor participation, with good returns and risking investment involved.