Know everything about Share Market & Share Market Investment here.
When it comes to the share market or the stock market, you can find a mixed-bag of feelings. Some would say it works brilliantly for them; others will certainly disagree.
We, however, believe in this statement that if you do something with passion and proper understanding, there are chances you will get success more often than not.
Now, we know that when a business becomes a public limited company, not only its shares are released in the market, but the company must share internal details publicly.
So, you will get to know the vision of the company and can decide whether or not it is the right call. Meanwhile, in this article, we will learn what the share market is, and how does it work.
We will also take a look at the various factors that influence the market conditions and give you suggestions of how you should respond as well.
Define Share Market or Stock Market
Before we go and learn about the various intricacies of the share market, let us know the basics first. The first question – what is a share market?
The answer to that is simple – it is an electronically-modulated market where the public limited companies offer its shares to the general public.
Now, as a common people who can buy a company share or stock and the place you do this transaction is the share market.
What we can say is people approach stock trading distinctly. Everyone has their perspective and vision towards particular company share.
The interesting factor is there is no rule-book or guideline that you could follow that will make your trading successful.
There are tons of factors that influence market conditions that we will learn later.
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Share Market Investment – Different Perspectives
To explain this point, let us assume you and one of your friends own a particular company stock of say 1000 units.
Now, in a hypothetical situation, let us assume the company is not happy with the current leadership and wants to hire a CEO.
As it is a public limited company, they have to share this information publicly.
Now, after hearing this piece of news, you and your friend can react to the following ways:
- You can believe that the company may find it hard to find a suitable CEO, so you can think that the price may fall. Now, your friend may trust the company to replace the current CEO with the new one in a matter of days, hence under the new regime the company can thrive and the stock price may go up.
- You can think that the current price is okay for you and you don’t trust how good or bad the new leadership will be. So, you can sell your owned stock. On the other hand, your friend may wait as the price may fall but believe in the company that the new CEO is better than the last one. Therefore, he thinks it is a good idea to hold the shares instead of selling.
- You can think that under the supervision of the new CEO, the stock price may decline. So, if it does, you are willing to buy new units of shares assuming you can earn profits once the ship steadies. Meanwhile, your friend can think what he owns is good enough for now and doesn’t want to invest more till the time he believes the new regime is competent enough.
As you can see, everybody can have their views, and based on that one can react. However, what will unfold in the market is always uncertain.
We will, therefore, discuss the significant points that influence the market.
Reason for the change in Stock Prices
Before doing any kind of Share Market Investment or Stock Market Investment, you should know the various reasons which causes Stock Prices to change.
Now that you have an idea of the trader’s perceptive, it is time to discuss the basics of how a stock’s price inflates or deflates.
There can be several aspects that you should take into consideration while you buy or sell a particular stock. Let us dive in:
Change in Company Leadership
Even after there is no hard and fast rule, but whenever there is a change in the management personnel like CEO or MD, the stock price of that respective company goes up.
The investors believe that the new regime of leadership will change the dynamics the way a company works. So, people start to invest more.
Hence, the price increases. However, it is not a guaranty all the time.
Introduction of a new Product or Services
Even though it heavily depends on how competent the marketing team of a company is, but whenever they introduce a new product or services, you can pretty much say that the stock price will go high.
Now, the change can take place slowly and steadily, or it can cause a massive boost in the price. It all depends on how the company wish to introduce the product to the market.
The National Association of Software & Services company (NASSCOM) is one of the biggest influencers in determining the change in the price of any particular share. Basically, it is a trade associating who has a massive say in how the market is behaving.
So, if they put a positive review of the stock’s price, you can expect a sharp rise. Similarly, you can expect a significant drop in the price for any negative comment.
Now, if you looking to buy those shares, you should wait till the time the price went down. Similarly, you should wait till the time the price increases.
So, if we draw a conclusion, we can say that the primary reason why the stocks move, it depends on the information we get about the company.
Of course, then there are organizations like NASSCOM that further clarifies the news and give its opinion.
Most people rely on what they foresee about a particular stock. That is what most people believe and either buy or sell company shares.
How does a Company Reputation Influence its Share Price?
While doing a Share Market Investment, one must know the reputation of the company as it has a massive impact on its share price.
There are two kinds of companies that we can categorize in this matter.
First, there are companies like Reliance, TATA, Birla, and some other corporate giants who don’t need any introduction. Of course, you can say there are other companies which fall into the second category.
People buy shares of the colossal companies, as the stock price is stable. There are fluctuations, but the information and predictions are out there open to get.
So, if experts are forecasting a drop in price for those companies, typically you will get ample time to buy or sell its shares.
However, there are some exceptional scenarios where you simply can’t predict. Other than that, people trust those companies.
In the case of small to medium companies with limited knowledge, the price fluctuations can be massive.
Of course, it can be stable depending upon its financial status, the industry domain, and many other factors.
Now, if you are tracking a company, make sure you do your study in case you are dealing with a small company’s shares.
Step-by-Step guide to the Share Market Investment Process
Stock Market Investment is pretty straightforward process. So, here are the simple steps to begin share trading:
Open a Demat & Trading Account
The first step is to prepare your accounts. You, of course, need three kinds of accounts – a Savings account, a Trading account, which initiates all the stock trading under your name, and the Demat account, which stores information of all the stocks you are currently owning.
Choose a stockbroking company if you think you need assistance. You must complete the KYC with the proper institution before you can start trading.
Learn to Trade & Track a Stock
Once you created the accounts, you need to learn how to trade via Trading App or Trading Platform. It is where you must initiate or place any order.
We suggest you take a look at the Market Watch feature and track a stock that you fancy to buy or sell.
Place an Order
Once you are happy with the price point of your interested stocks, you can place the order.
Buy or Sell a share only when you are happy with the price. Once you place an order, there is no turning back. Finally, you must mention the number of shares you wish to buy or sell.
Buy & Sell of Stocks
Since the number of stocks that the company issue already has an owner, whenever you try to buy or sell an allotted number of shares, someone must buy or sell their owned stocks.
That is why we call it the stock exchange in the first place. Now, whenever you place an order with the desired number, the exchange authorities do check whether or not you have adequate balance if you wish to buy.
Once the order payment gets verified, you will get an order ticket. Then the stock exchange finds the right buyer or seller to perform the trading.
How many Share to Buy or Sell?
What you should be bothered about is the number of shares you wish to buy or sell. Sometimes, the algorithms of the stock exchange can find multiple traders to suffice your requirements.
It is an automated process which can take a bit of time; sometimes it can be at the blink of an eye.
Share Allotment Process
One more thing that you should remember that sometimes the exchange may not allocate the entire number of stocks.
So, you will only get the allocated number of shares by the exchange.
Owner of Shares
Once you own a company’s stocks, you are technically a part of the company ownership.
Now, some companies offer special privileges to its stockholders in the form of Dividends, Voting rights, Bonuses, and many more.
What is the Holding Period in Share Investment?
One of the first things that you should understand is you don’t own the company stocks; you acquire the right to hold it under your name.
So, if we want to explain what holding period is, it is the time frame you hold the shares under your ownership.
Now, of course, to hold a particular stock, you need to pay a nominal fee to the broker or the agency you are dealing with.
The fee depends on the company brokerage fee structure and the amount of time you wish to hold the stocks.
How to figure out the Profit Margin in Stock Investment?
The main objective of share market investment is to earn profits. So, it is pivotal to know how much you are earning.
Now, there are two ways to calculate the profit margins, which we call Absolute returns and Compounded Annual Growth Rate (CAGR). Let us know them better:
Absolute Return is a theoretical concept. It is more applicable if the holding period stays within a year.
When you complete a trade, i.e. bought a stock and then sold it, the first question that typically raises is how much profit did you make? To answer this question, there is a formula:
[Ending Period Value / Starting Period Value – 1] * 100
This will give you a clear idea of how much profit you have made after a particular stock trading.
Compounded Annual Growth Rate (CAGR)
This is a deeper concept which the real-world works. When you buy a pile of stocks, you should have an idea of how much time you wish to hold it.
So, when you hold it for say 5 years, you must pay the brokerage fees as well. So, in a real sense, that brokerage fee should also be included in the overall investment.
Additionally, there are some more fees like transaction fee, GST, Stamp Duty, and a few more that you must also pay. All of them should be included in the entire investment.
So, when you are trying to figure out how much profit you have made after two years, the Absolute Return formula won’t work.
That is why there is the CAGR formula that you must take a look:
CAGR =(Ending balance/beginning balance)1/n – 1
Using this formula, you can calculate the exact return that you have earned over a period.
Conclusion – Share Market Investment
So, what we have learned is a stock market is where you can purchase or sell company issued stocks. You can say, it is an electronic market where you can trade stocks to earn handsome profits.
We have also learned that several other factors influence the price of a share.
However, the most significant reason for the changes in stock price is the news that circulates from within the company. At the end of the day, there are no fixed rules to dominate the stock market.
You do stock trading – sometimes you will earn profits, and sometimes you can do some bad deals.
However, every time you do trading, you will gain experience; and eventually, you will become a good trader.
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