All businesses need money to run smoothly. Sometimes, the profit they make by selling products or services is not enough to cover their expenses. So, companies ask normal people like us to invest money in their business. In return, we get a share of the company’s profits.
This is the basic idea behind the stock market. Let’s understand it in more detail.
What are Stocks?
Stocks are a way to invest your money and grow your wealth.
When you buy a stock, it means you own a small part of that company.
By investing in stocks, you are investing in some of the most successful businesses.
Stocks are divided into different types based on things like:
- Market size (Market Capitalization)
- Who owns them (Ownership)
- Company strength (Fundamentals)
- Price movements (Price Volatility)
- How profits are shared (Profit Sharing)
- Economy changes (Economic Trends)
What is the Share Market?
Many people confuse the terms Stock Market and Share Market. They are similar, but not exactly the same.
- Share Market: A place where only shares (ownership parts of companies) are bought and sold.
- Stock Market: A place where not only shares, but also bonds, mutual funds, and other financial products are traded.
How Does the Stock Market Work?
Companies raise money by selling shares to investors on the stock market.
When you buy a share, you own a part of that company.
Companies use this money to grow their business. If the business does well, the value of your shares goes up. You can make money by selling your shares later for a higher price (called capital gains) or by receiving regular payments from the company (called dividends).
Over time, even though individual stock prices go up and down, the overall stock market has given about 10% average returns per year – making it one of the best ways to build wealth.
Important Stock Market Terms You Should Know
Here are some key terms to help you understand the stock market better:
| Term | Simple Meaning |
|---|---|
| Sensex | Top 30 company stocks listed on the Bombay Stock Exchange (BSE). |
| SEBI | Securities and Exchange Board of India – it regulates the stock market and prevents fraud. |
| Demat Account | An online account where your stocks are held in digital form. |
| Trading | The act of buying or selling shares. |
| Stock Index | A number that shows how a section of the market is performing. |
| Portfolio | A collection of all the investments you own (stocks, gold, property, etc.). |
| Bull Market | When stock prices are going up and the economy is strong. |
| Bear Market | When stock prices are falling and the economy is weak. |
| Nifty 50 | Top 50 company stocks listed on the National Stock Exchange (NSE). |
| Stock Broker | A person or company that helps you buy and sell stocks. |
| Bid Price | The highest price a buyer is willing to pay for a stock. |
| Ask Price | The lowest price a seller is ready to sell the stock for. |
| IPO | Initial Public Offering – when a company sells its shares to the public for the first time. |
| Equity | The value left for shareholders after a company pays off its debts. |
| Dividend | A share of the company’s profit given to its shareholders. |
| BSE | Bombay Stock Exchange – India’s first and largest stock exchange. |
| NSE | National Stock Exchange – India’s first electronic trading platform. |
| Call & Put Options | Rights to buy (call) or sell (put) a stock at a specific price. |
Types of Stock Markets
There are two types of stock markets:
1. Primary Market
- Companies sell new shares to the public for the first time (through IPOs).
2. Secondary Market
- After the shares are issued, people buy and sell them among themselves with the help of brokers.
Other Important Terms
- Ask and Close:
- Ask: Lowest price a seller is willing to accept.
- Close: Last price at which a stock is traded on a particular day.
- Moving Average:
A tool used to see the trend of a stock’s price by taking its average price over a few days or months.- If the moving average is rising, the stock is going up.
- If it is falling, the stock is going down.