Beginners guide to share market

What is a share market?

A share market, also known as a stock market, is a place where buyers and sellers of shares (also called stocks) of publicly traded companies come together to trade. The shares represent ownership claims on businesses. When you buy shares of a company, you are essentially buying a piece of that company. As a shareholder, you are entitled to a share of the company’s profits, if any. You are also entitled to vote on certain decisions that the company makes.

The share market allows companies to raise capital by selling shares to the public. It also allows investors to buy and sell shares of companies, which can be a way to make money if the share price goes up.

The share market is a complex and volatile market, and there is always the risk of losing money. However, it can also be a way to make a lot of money over the long term.

Also watch our video on stock market for beginners : https://youtu.be/xYdDkNAfZv8?si=uLwCxf2nCEHQWETz

How does a share market work?

1. Company Establishment: Let’s say a new technology company called “TechX” is founded. The founders of TechX decided to raise capital to fund their operations and growth. To do this, they decided to issue shares of stock.
2. Initial Public Offering (IPO): To make shares of TechX available to the public, the company goes through an Initial Public Offering (IPO). During the IPO, a certain number of shares are offered for sale to investors. The price at which these shares are initially sold is called the IPO price.
3. Investor Participation: Investors, such as individuals, mutual funds, or institutional investors, participate in the IPO by purchasing shares at the IPO price. Once the shares are purchased, investors become shareholders of TechX.
4. Stock Exchange: TechX’s shares are listed on a stock exchange, such as the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE). These exchanges provide a platform where investors can buy and sell shares of TechX and other publicly traded companies.
5. Market Trading: After the IPO, TechX’s shares can be freely traded on the stock exchange. The price of TechX shares fluctuates throughout the trading day based on supply and demand. If more investors want to buy TechX shares than sell them, the price may rise, and vice versa.

Beginners guide to share market

As a beginner in the share market, it is very important that one understands the basics of investing in shares. Here are the key steps and concepts you should consider when getting started:

• Educate Yourself:  Before diving into the share market, take the time to learn about how it works. Read books, articles, and online resources to understand the terminology, strategies, and risks associated with investing in stocks.
• Set Clear Goals: Determine your financial goals and risk tolerance. Are you investing for retirement, a major purchase, or wealth building? Understanding your goals will help shape your investment strategy.
• Create a Budget: Establish a budget for your investments. Decide how much money you can comfortably invest without affecting your day-to-day expenses and financial security.
• Choose the Right Broker: You’ll need a brokerage account to buy and sell stocks. Research different brokerage firms and choose one that offers the features and fees that align with your needs and budget.
• Diversify Your Portfolio: Don’t put all your money into a single stock or sector. Diversify your investments by spreading your money across different stocks or asset classes (such as stocks, bonds, and real estate investment trusts) to reduce risk. You can read more about diversification here.
• Stock Selection: Start with well-known, established companies when selecting your first stocks. These are often referred to as “blue-chip” stocks. Consider companies with strong financials, a history of profitability, and a competitive advantage in their industry.
• Understand Risk: Every investment carries some level of risk. Stocks can be volatile, and their prices can fluctuate. Assess your risk tolerance and be prepared for risk management.
• Stock Research: Before buying a stock, research the company thoroughly. Look at its financial statements, earnings reports, competitive position, and industry trends. Analyze both the company’s fundamentals and its potential for growth
• Invest for the Long Term: Stock market investing is generally a long-term endeavour. Avoid trying to time the market or make quick profits. Focus on a buy-and-hold strategy and stay patient.
• Stay Informed: Keep up with financial news and market trends. Understanding the factors that influence stock prices, such as economic indicators and geopolitical events, can help you make informed investment decisions.
• Monitor Your Investments: Regularly review your portfolio to ensure it aligns with your goals and risk tolerance. Rebalance your holdings if necessary to maintain diversification.
• Stay Disciplined: Emotions can lead to impulsive decisions. Stick to your investment plan, and avoid making hasty changes based on fear or greed.

Benefits of Investing in the Share Market

• Potential for high returns: Over the long term, the share market has historically outperformed other asset classes such as bonds and cash.
• Diversification: Investing in the share market can help you diversify your portfolio and reduce your risk.
• Access to growth: The share market gives you access to the growth potential of companies.

Risks of investing in the share market

• Volatility: The share market is a volatile market, and there is always the risk of losing money.
• Illiquidity: Some shares may be illiquid, meaning that it may be difficult to sell them quickly if you need to.
• Fraud: There is always the risk of fraud in the share market.

Conclusion

Getting started in the stock market as a beginner can be both exciting and challenging but it is also important to do your research and understand the risks involved. You should also speak to a financial advisor to get personalized advice.