Is no one explaining share market in simple words to you? Are having trouble how to do trading in India? Do you think it’s too difficult or too risky to invest ? You’re not alone. Many people feel the same way.
But the truth is, if done right , the stock market doesn’t have to be more difficult than it needs to be, even for beginners.
The problem is that share market is often explained in jargon-laden words that are hard for beginners to understand. But don’t let that stop you. This article will help you understand what is stock market and how it works in an easy way.
By the end of this article, you will have a clear idea of what is stock market, how it works and how you and most importantly, how to invest in stock market. So, let’s start!
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Understanding the Share Market: Key Concepts Explained in Simple Words
Let’s start with an Imagine you have some savings, and you don’t want it to sit idle in your bank account; you want to put it to use to earn more. You come across something called “the stock market or share market,” but you’re not sure what it is. You want someone to explain to you in simple language. So, here it is.
In One Sentence: The stock market or share market is like a big store where people buy and sell shares of different companies.
A simplified definition of “a Share”
“A share” is like a tiny piece of a company. When you buy shares in a company, it means that you own a small part of that company. For example, if you buy 5 shares in Company A, then you own 5 tiny little pieces of Company A. As you can see, you own that company in proportion to your investment.
If the company does well, your shares will increase in value and you can earn more. If the company does not do well, your shares will decrease in value and you may lose some of your investment.
Now that you know what shares are , you may want to know how to buy and sell them in India. It’s really not that hard. We’ll show you how to buy and sell shares online on the Indian stock market in this part.
How to Buy and Sell Shares Online, in India
Buying and selling shares in the Indian stock market is actually pretty simple. You just need to open an account with a brokerage firm, called a demat account. Then, you search for the company you want to buy shares in. Once you find it, you can place an order to buy shares
When you’re ready to sell, it’s the same process in reverse. You go to your demat account, search for the shares you want to sell, and then place an order to sell them. The brokerage firm will then execute the trade on your behalf, and you’ll get the money from the sale in your demat account. It’s really that simple!
Keep in mind, though, that you can’t sell the shares back to the company, it has already used your money to perform its business. You can only sell the shares to other traders like you.
Important Definitions For Share Market Beginners (In Laymen’s Terms)
Before we dive deep into how the share trading – the buying and selling – of shares takes place in India, it’s crucial for beginners to understand what is a “brokerage firm” and what is a “demat account”
What is a brokerage firm?
A brokerage firm is a company that acts as a middleman between buyers and sellers of stocks. Think of it like a travel agent for stocks. Just like how a travel agent helps you book your flight and hotel, a brokerage firm helps you buy and sell stocks. They can help you open an account, research stocks, and execute trades on your behalf. In return, they charge a fee for their services. It’s important to choose a reputable brokerage firm to ensure that your investments are safe and that you’re getting good advice.
What is a demat account?
A demat account is like a digital bank account, but instead of money, it holds shares of stock. Just like how you need a bank account to keep your money safe, you need a demat account to keep your stocks safe. When you buy shares of a company, they get credited to your demat account, and when you sell shares, they get debited from your demat account.
This makes it easy to keep track of your investments and manage them. It’s similar to how you would keep physical shares in a safe, but since the shares are digital, you don’t have to worry about losing them or them getting stolen.
Now, with that out of the way, let me walk you through the process that will help you understand share trading with clarity.
A Step By Step Breakdown of Share Trading in India
Step 1: Open a demat account with a brokerage firm.
Step 2: Fund your demat account. Just like you need money in your bank account to make transactions, you’ll need to deposit money into your demat account to buy shares.
Step 3: Research the stocks you want to buy. You wouldn’t buy a product without researching it first, and you shouldn’t buy a stock without researching the company first either. Look at the company’s financial statements, management, and industry trends to determine if the stock is a good investment.
Step 4: Place your order. Once you’ve decided on the stock you want to buy, you’ll need to place an order with your brokerage firm. You can do this online, by phone, or through your brokerage’s trading platform.
Step 5: Wait for the trade to settle. After you’ve placed your order, you’ll need to wait for the trade to settle. This is the process of transferring the shares into your demat account and the money into the brokerage’s account.
Step 6: Sell the shares. When you want to sell your shares, you’ll need to place a sell order with your brokerage firm. Just like when you bought the shares, you’ll need to wait for the trade to settle before the shares are transferred out of your demat account and the money is transferred into your account.
Decode Stock Market Jargon: A Beginner’s Guide to Understanding Key Terms and Phrases
Now that you have a basic understanding of how to buy and sell stocks, it’s important to also familiarize yourself with the terminology and jargon used in the stock market. Just like any industry, the stock market has its own set of language and phrases that can be overwhelming for beginners. But don’t worry; in the next section, we will break down these terms and explain them in plain language, so you can feel confident in your trading decisions.
What is Bull Market
A bull market is when the stock market is going up and prices of stocks are increasing. It’s like when the weather is nice and sunny, it’s a good time to be outside and enjoy the sunshine. Similarly, when the stock market is going up, it’s a good time to buy stocks.
What is Bear Market
A bear market is when the stock market is going down and prices of stocks are decreasing. It’s like when the weather is bad and it’s raining, it’s not a good time to be outside. Similarly, when the stock market is going down, it’s not a good time to buy stocks.
What is Diversification of Investment
Diversification is like not putting all your eggs in one basket. Instead of putting all your money in one stock, you spread it out and buy different stocks from different companies. This way, if one stock doesn’t do well, the other stocks can make up for it.
What is Bid and Ask Price
The bid price is the highest price that a buyer is willing to pay for a stock, while the ask price is the lowest price that a seller is willing to accept for a stock. The difference between the bid and ask price is known as the spread, and is typically small.
What is Risk Tolerance
Risk tolerance is how much risk you are comfortable taking with your investments. It’s like how much you enjoy roller coasters. Some people like the thrill of a roller coaster and will ride the biggest and scariest ones, while others prefer something more mild. Similarly, some investors are comfortable taking big risks with their investments while others prefer to play it safe.
What is Portfolio
A portfolio is like a collection of your stocks. Just like how you have a collection of stamps or coins, you also have a collection of stocks that you own. A portfolio is a way to keep track of all your investments and see how they are doing.
What is IPO
It stands for Initial Public Offering, which is when a company decides to sell shares of its stock to the public for the first time. Now, you can buy a piece of the company and become a shareholder. This way the company can raise money and use it to grow their business.
What is Capital
Capital is like money. Capital is what a company uses to grow and expand its business. Just like how you need money to buy things and pay for things, a company needs capital to buy equipment, hire people, and run its operations.
What is Capital Gain
Capital gain is when you make a profit from your investments.
What is Technical Analysis
It is a way of analysing stocks by looking at past market data, such as stock prices and trading volume. This type of analysis is used to try and predict future stock price movements. Think of it like studying the weather forecast to predict if it’s going to rain tomorrow.
What is Fundamental Analysis
It is a way of analysing stocks by looking at a company’s financial and economic fundamentals, such as its revenue, earnings, management, projections and assets. This type of analysis is used to determine a company’s intrinsic value and to make investment decisions. Think of it like evaluating a business’s financial health like a doctor examines a patient’s health.
What is Stop Loss
It is a tool used by traders to limit potential losses on a trade. It is when you set a limit on how much you are willing to lose on a trade, in order to minimise your risk and protect your capital. Essentially, a ‘stop loss order’ is a risk management tool that can be used by investors like you to automatically sell a share when the price drops to a certain level, preventing further losses.
With all of this information in mind, let’s wrap up and take a look at the key takeaways from our discussion on understanding the stock market in simple words:
Simplifying stock market investing: Key Takeaways
- The stock market is a place where people buy and sell shares of different companies.
- When you buy shares in a company, you own a small part of that company, which is known as a “share”.
- When a company does well, your shares will increase in value, and you can earn more. If a company does not do well, your shares will decrease in value, and you may lose some of your investment.
- To buy and sell shares, you need to open a demat account with a brokerage firm to hold and keep track of the shares.
- A brokerage firm is a middleman that helps you buy and sell stocks and charges a fee for their services.
- A demat account is like a digital bank account that holds shares of stock and makes it easy to keep track of your investments.
- It is important to choose a reputable brokerage firm to ensure that your investments are safe and you are getting good advice.
- The process of buying and selling shares is called “share trading” and a person who does that is a “share trader”.
- Investing in the stock market can help grow your wealth over time if you invest in companies that are expected to do well in the future.
We hope that this guide has demystified what is share market in simple words for you. Investing in the stock market can be a great way to grow your wealth over time, but it’s important to be aware of the risks and rewards involved.
Remember, investing in the stock market is a long-term process, and it’s important to consult with a financial advisor and do your own research before making any investment decisions.
Now that you have a better understanding of the stock market, it’s time to take action and start your investment journey. One of the first steps in investing in the stock market is to open a demat account with a brokerage firm.
We highly recommend opening an account with GCL broking, as we offer a wide range of services and resources to help you make informed investment decisions. Our team of experienced financial advisors are always ready to assist you in your investment journey.
So, don’t wait any longer and take the first step towards growing your wealth today.
Click on the link or give us a call to open your demat account and start your investment journey now!