Let us understand the Share Market with a story. You bought a whole packet of chocolates for Rs. 100, it contained 20 chocolates. You gave one chocolate each to 10 of your friends for Rs. 10. All the friends gave Rs. 10, thus you got Rs. 100. The chocolates were sold and you also earned money.
In fact, companies also do the same thing. This is how companies raise money. When companies need a large amount, say Rs. 400 crore, they do not borrow money directly from the bank. Instead, companies divide their stakes into small portions. These small portions are called shares.
It issues 40 crore shares. Each share is priced at Rs 10. The company then lists these shares on the share market through an IPO. These shares are now ready in the share market for the public to buy or save. Someone buys 1 share, some 10, some 100, or even 8000. This way, the company raised 400 crore.
What does a share mean in the share market?
Just like a single piece of chocolate is a small portion of the entire packet. A share is also a small portion of a company. When you buy a single share in the share market, understand that you have purchased a small portion of the company.
Now comes the real game of share trading. Now the story takes an interesting turn. One of your friends, Rahul, was very smart. He saw another boy in the same group, Dinesh. He was very hungry and wanted chocolate. Rahul told Dinesh, “I bought this chocolate in 10 rupees. If you want it, I will give you for 20 rupees. If you want it, take it; otherwise, leave it.” Dinesh was hungry, so without thinking much, he gave 20 rupees and bought the chocolate. This is trading.
Now let’s understand it in the share market language. The company issued its shares, people bought them, and later some of them sold their shares to someone else at a higher price. This buying and selling of shares is called share trading.
Why Share Price Increases And Falls in Share Market
Share prices are like the appetite for chocolate – dependent on demand and supply.
Price increases when:
The company makes good profits, and business is growing. The future looks bright.
Price falls when:
The company is in the red. The news is negative. People start selling shares.
Trading & Investment in Share market
Trading – Short Term, Buy Early, Sell Early High Risk Involve
Investment – Long-term Confidence in the company’s growth Working risk-comparatively.Investment is always better for beginners.
Is Share market Risky
When you buy shares in a company, you are buying a small stake in that company. You are becoming a co-owner of that company. Tell me, you invest money in a friend’s business and if the business does not do well, you will lose your money, but if it does, you will make a good profit. This is a risk, in the same way you invest in a big company in the share market, if that company sinks then your money will be lost and if that company grows very well then you will get good returns. it is like you invest money in your friend’s business thinking that if the business grows then you will get a fair share of the profit and if it does not grow then you will bear the loss. You will not get interest, you will not get interest even in the share market because this is not a loan. So there are many such companies which keep sinking and there is absolutely irrational loss. But there are also many stocks that can give you 8 time to 10 time returns in 5 to 6 years. Of course, these are riskier, so the returns are higher.
