Understanding the Share Market
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Introduction
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The share market, also known as the stock market or equity market, is a platform where individuals can buy or sell shares of a company. It allows people to become partial owners of a company and potentially profit from its success. In this blog, we will explore the history of share markets, how they work, their advantages and disadvantages, and how you can invest money in them.
The Origin of Share Markets
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The concept of share markets dates back around 400 years ago. During the 1600s, there were companies like the Dutch East India Company that invited people to invest in their ships. These ships were sent on exploration voyages to discover new lands and engage in trade. Investors were promised a share of the treasures brought back by these ships. However, due to the risks involved, investors preferred to invest in multiple ships to increase their chances of profit. This led to the development of a share market where shares of these ships were openly bid on their docks.
The Primary and Secondary Markets
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The share market can be divided into two types: the primary market and the secondary market. In the primary market, companies sell their shares to the public for the first time. They determine the share prices, although there are regulations in place to prevent manipulation. The secondary market is where people buy and sell shares amongst themselves. The share prices in the secondary market fluctuate based on supply and demand.
Stock Exchanges
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Every country has its own stock exchange, which is a place where people can trade shares of companies. In India, the two popular stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has around 5400 registered companies, while the NSE has 1700 registered companies.
Sensex and Nifty
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To measure the overall movement of share prices in the stock market, two indices are commonly used: Sensex and Nifty. Sensex represents the average trend of the top thirty companies listed on the BSE, while Nifty shows the price fluctuations of the top fifty companies listed on the NSE. These indices help investors gauge the performance of the stock market over time.
Listing on the Stock Exchange
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Getting listed on the stock exchange is not an easy process. Companies have to fulfill strict norms set by regulatory bodies like SEBI (Security And Exchange Board of India). These norms include thorough checks and balances on the company's accounting, the presence of multiple auditors, and having a sufficient number of shareholders. The listing process can take several years to complete.
Investing in the Stock Market
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Investing in the stock market can be done through a bank account, a trading account, and a DEMAT account. These accounts allow individuals to buy, sell, and store shares in a digital form. Retail investors, like common people, often rely on brokers to facilitate their investments. However, it's important to consider the brokerage rates charged by brokers, as they can significantly impact trading activities.
Investing vs. Trading
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Investing and trading are two different approaches in the stock market. Investing involves putting money into the market and holding it for the long term. Trading, on the other hand, involves quick buying and selling of stocks to take advantage of short-term price fluctuations. While trading can be profitable, it requires a deep understanding of the market and is often a full-time job.
Should You Invest in the Share Market?
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Investing in the share market can be risky, especially if you lack knowledge about companies and their performance. Blindly following tips or rumors can lead to losses. It is advisable to rely on experts or consider investing in mutual funds. Mutual funds allow you to entrust your money to professionals who decide which companies to invest in, reducing the risk of losses through diversification.
Conclusion
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The share market provides opportunities for individuals to become partial owners of companies and potentially earn profits. However, it is crucial to educate oneself about the market, properly research companies, and consider expert advice before investing. Whether you choose to invest directly or through mutual funds, always remember that investing involves risks and should be done with caution.
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