What is Share Market & How To Do It | Types of Share Market

What is Share Market?

The Share Market is where shares and other financial instruments of companies are traded. When a company wants to raise capital to expand its business, it sells its shares to public investors. These investors then purchase the shares and become shareholders in the company. The share market helps companies raise capital and allows investors to earn profits.

Investing in the share market can be a potential way to grow wealth, but it also comes with risks. Therefore, before investing in the share market, you must have comprehensive knowledge and a well-planned strategy.

Key Terms You Should Know Before Start Investing in Share Market

What is a Share?

A share represents a small ownership stake in a company. Once you buy company shares, you are called an “Investor” and investors become part-owners. Being an investor, you are entitled to a company’s profits, either through dividends or through price appreciation.

What are Stock Exchanges?

A stock exchange is a regulated marketplace where shares are bought and sold. In India, the two major exchanges are:

• NSE (National Stock Exchange)

• BSE (Bombay Stock Exchange)

What is a Demat and Trading Account?

• Demat Account: A Demat account holds your shares in electronic form.
• Trading Account: A trading account is used to buy and sell shares. Both accounts are mandatory for trading in the stock market.

What is the Bull and Bear Market?

• Bull Market: A condition where stock prices are rising is called a bullish market.
• Bear Market: A condition where stock prices are falling is called a bearish market.

Risk and Reward

• High Risk, High Reward: Shares can offer significant returns, but they are also risky. Prices of the share can fluctuate dramatically in the short term. Long-term investors get most of the benefit of investing in the share market in the form of wealth creation. 

• Diversification: Diversification is necessary to reduce risk by investing money across different sectors and companies.

Types of Share Market

The share market is mainly divided into two categories:

Primary Market

The primary market is where new companies issue their shares for the first time. This process is called an Initial Public Offering (IPO). When a company sells its shares for the first time, investors can buy them directly from the company. This is the first stage of capital raising for companies.

Features of the Primary Market:

• Investing through IPO: Investors get the initial shares here, which can later be traded in the secondary market.

• Company's First Offering: It is a vital way for the company to expand its business.

Secondary Market

The secondary market is where shares that have already been issued are bought and sold. This is the market where shareholders can sell their shares to other investors. In the secondary market, the prices of shares fluctuate based on market demand and supply.

Features of the Secondary Market:

• Resale of Shares: Investors can sell their shares, and other investors can buy them.

• Price Fluctuations: Share prices depend on factors like company performance, economic conditions, and other external factors.

• NSE and BSE: In India, the major secondary markets are the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange).

How to Invest in the Share Market?

To invest in the share market, follow these important steps:

Open a Demat Account

To invest in the share market, the first step is to open a Demat account. This account holds your shares in electronic form. You can open a Demat account with any recognized bank like HDFC Bank, or ICICI Bank,  or stock brokers like Zerodha, Groww, Motilal Oswal, and many more.

Open a Trading Account

Along with a Demat account, it is necessary to open a trading account. This account enables you to buy and sell shares. Many brokerage firms provide this service.

Select Shares

Before investing in a company's shares, analyze its financial performance, stability, future prospects, and market situation. You can use fundamental analysis and technical analysis to study share prices.

Place an Order

To buy or sell shares, place an order with your broker. You can do this online or through a broker. Once you place the order, it is executed on the stock exchange on your behalf.

Portfolio Management

After investing in the share market, it is crucial to regularly monitor and manage your investment portfolio. Based on market fluctuations, you may need to make necessary adjustments to your investments.

Benefits of Investing in the Share Market

• High Returns: Long-term investment in the share market can yield significant profits.

• Diversification: You can invest across various sectors and industries, reducing overall risk.

• Liquidity: The money invested in the share market can be easily sold and converted, providing you with funds when needed.

Risks of Investing in the Share Market

• Market Volatility: The share market can experience sudden fluctuations, leading to a decrease in the value of your investment.

• Company Performance: If the company whose shares you have bought underperforms, the value of your investment can drop.

• Emotional Decisions: Making emotional decisions during market ups and downs can lead to losses.

Stock Market Analysis

Fundamental Analysis

This involves analyzing a company’s financial health, industry position, and growth potential. You look at metrics like Earnings Per Share (EPS), Price-to-Earnings Ratio (P/E), and Return on Equity (ROE) to assess whether the stock is a good buy. You can use Screener for Fundamental Analysis.

Technical Analysis

Technical analysis focuses on stock price movements and market trends. By studying charts, historical data, and indicators like Moving Averages and RSI (Relative Strength Index), traders try to predict future price movements.

How to Stay Updated with the Share Market?

• Financial News: Keep yourself informed by following credible financial news websites, newspapers, and market analysts.

• Stock Market Apps: Use stock market apps for real-time price updates, alerts, and analysis.

• Attend Webinars and Workshops: Many brokerage firms offer webinars and educational resources for beginners.

Conclusion

The share market is a platform that offers investors the opportunity to grow their wealth. However, before investing, it is essential to have proper knowledge and manage risks effectively. With a structured strategy and patience, you can become a successful investor in the share market. It’s important to seek expert advice and increase awareness about investing before stepping into the market.

Frequently Asked Questions

Is Investing in the Share Market Safe?

Investing in the share market carries risks. If you invest with the right knowledge and strategy, it can be profitable. However, due to market volatility, you must know proper risk management, otherwise losses can also occur.

Can I Get Rich Quickly in the Share Market?

The share market is not a quick rich game. It requires patience, planning, and a long-term approach. Due to market volatility and risks, trying to earn quick profits can lead to losses.

What is the Minimum Money Required to Invest in the Share Market?

The minimum money required to invest in the share market varies. Some company shares are available at low prices also that can be purchased for a few hundred rupees, while others may be more expensive. However, you must check the fundamentals of companies whose shares are available at low prices. 

Should I take the help of a financial advisor?

Yes, it is always advisable to take the help of a financial advisor to invest in the stock market and create an investment plan that matches your investment goals.

Can I start investing in the stock market with a small amount?

Yes, you can start investing in the stock market with a small amount. Many brokers offer low minimum investment amounts.

How can I learn more about the stock market?

You can read books about the stock market, take online courses, or read financial news.