In general a share is a part of the ownership of a company. A person who buys a portion of a company’s capital becomes a shareholder in that company’s assets and such receives a share of the company’s profits in the form of an annual dividend.
In finance a share is a unit of account for various financial instruments stocks, mutual funds, limited partnerships and REIT’s . In simple words , a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market.
By purchasing a share you can earn a portion of the company and by selling the shares you get capital gain so, the return in the form of dividend plus and the capital gain. However , there is also a risk of capital gain incase you sell the share at a lower price.
Facts on Stocks and Shares:
- Owing a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues.
- Over the long run, stocks have historically averaged about 10% annual returns however, stocks offer no guarantee of any returns and can also value,even in the long run.
- Investments in stocks can generate returns through dividends,even if the price .
- Open an online trading and demat account with Zerodha and enjoy the lowest brokerage
What is share market?
The main function of the share market is to function as a source of capital for companies. companies which wants to expand its business , can go to share market. In share market ownership of company is sold to investors in form of stocks/shares . Individual stocks represent ownership of company subdivided in to small units. These small units are called as stocks which can be buy/sell in share market.
Share market is like a interface between companies and investors. share market is a place where stocks of companies are listed. These listed stocks are available for investors for buying. The money raised by companies in the process of selling their stocks is their accumulated capital. This accumulated capital is used by companies , the main advantage of raising capital from share market is that interest free. Unlike bank loans, where interest payment shall be made or borrowed fund, share capital demand no interest. from point of view of investment , share market is the best long term option.share market provides best long term returns. In addition to investors money are very liquid in share market. The day they want they can sell their holding easily.
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How it works?
For majority, share market is like gambling . People think that playing share market is simply ‘buying low and selling high’, people do not bother why stock’s price is falling /rising . But in reality, share market works much more logically than a game of roulette. for trained investors share market is no gambling, it needs pure business logic. if practiced properly , share market can be predicted fairly accurately. but many does not want to take the pain of understanding share market’s logic.
In India we have two big share markets, Bombay stock exchange (BSE) and National stock exchange (NSE). if one wants to buy stocks from bombay stock exchange then he/she need not travel to Bombay or Delhi. He can simply approach a stock broker or else do it oneself. Doing oneself is possible by opening a online trading platform & a Demat account. These days online trading platforms are provided by all major banks like ICICI, SBI, HDFC , etc,.,. and discount brokers like Zerodha, Sharekhan, India bulls, etc… (Zerodha is the best and cheap broker in India)
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Why investors buy stocks?
Investors buy stock for two reasons:
- For earning dividends
- For claiming capital appreciation.
Capital appreciation is dependent on growth of companies assets and earnings. if companies earnings (profit per share) is increasing ,its market price will certainly increase in the same proportion.
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So, start learning from today and start investing , (Open a Demat account with Zerodha enjoy Zero brokerage on investments ) Varsity tool by Zerodhahelps you to understand stock market basics and best trading platform for beginners for more details follow the below link!!
Happy Investing!
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Venkatesh Krishnasamy, Senior Test Engineer at HCL Technologies
What is Share Market::
Share:
Share is nothing but the Ownership of the company divided into small parts and each part is called as Share or Stock. Share is also called by different names like equity, financial security and so on. A person carrying a share of a company holds that part of ownership in that company. A person holding maximum shares carry maximum ownership and designated like director, chairman etc.
Share Market:
A Share market is the place where buying and selling of shares takes place. Now days due to internet and advanced technology there is no need to present physically in exchanges like NSE and BSE but in fact the buying and selling of shares can be done from anywhere, where there is a computer with internet connection. One should have a demat and trading account, computer and internet connection and he/she can start the share trading or investing from anywhere.
First let us understand the Working of a share market:
To learn about how you can earn on the stock market, one has to understand how it works. When a person want to buy/sell shares in the share market then he has to first place the order with a broker or can do themselves using online trading systems (this will be discussed later). When you place the buy order, the message is transferred to the exchange [either NSE {National Stock Exchange} or BSE {Bombay Stock Exchange}] and the order stays in the queue of exchange's other orders and gets executed if the price of that share comes to that value. Once you get the confirmation of this transaction, the shares purchased, will be sent to your demat account. The shares will be stored in demat account in electronic format.Index in share market Index consists of group of shares. Index denotes the direction of the entire market. Like when people say market is going up or down then that means Index is going up or down. Index consists of high market capitalization and high liquidity shares. High Market capitalization shares - Companies having highest number of shares and highest price of each share. Market capitalization is calculated by multiplying current share price and number of shares in the market. High Liquidity shares - Shares in the market with high volumes. You need to understand about balance sheet, share capital, net profit, debts, shareholding pattern all such things.
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Ankit Singh, student at Indian Institute of Technology, Kharagpur
Companies need large amount of funds to function. So they register themselves with the stock market regulatory authority of a country e.g. SEBI in India, and issue shares to the public. Shares are fractions of the company that give ownership rights to the person holding them.
The type of the shares determine the type of ownership. Some shares give the owner voting powers, some are held only to yield dividend (a fee of gratitude for investing in the company) at the end of a stated period etc.
Whatever be the purpose of the stock holder, the motive of the company is always raising capital.
Issue of shares means the company is selling shares to an individual. This, in turn, means that there is an inflow of capital for the company which it utilizes to fund projects. When these projects yield positive returns, stock holders are awarded dividends, depending on how well the company is doing.
The Stock market consists of individual company shares and indexes (portfolio or collection of choicest company stocks) alongwith a multitude of lateral financial instruments.
Stock prices and dividends are determined by a number of macroeconomic and business parameters alongwith the perceptions of the buyers and sellers in the stock market.
This is a very interesting field of behavioral finance. I hope you find it just as amusing. Good luck.
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Alqama Pervez, Manager, Reserve Bank of India
[For beginners]
Suppose I want to start a business. I need a 1000 rupees for that, but I only have 600 with me. I offer my friends to be partners in my business. Two of them - F1 and F2 - agree and they contribute 200 each. Our business takes off and, by virtue of our respective contributions, my share in the business is 60%, while F1 and F2 hold 20% each.
Here, Rs. 1000 is the equity capital of our business.
Our business is running cool and we now plan to expand it. We want to double the equity capital of our business so that we may increase our production. Thus we need Rs. 1000 more (to make our equity capital Rs. 2000). This time we don't ask individual friends, we just spread the word around that we are planning to expand and anyone is welcome to contribute. This is called public offering.
10 gentlemen come forward with Rs. 100 each. Thus each of them becomes a shareholder of the company, holding 5% share each (100/2000*100). If we divide the Rs. 2000 equity capital into 20 parts of Rs. 100 and call each part a share, then every gentleman holds 1 share of the company, while I hold 6 shares (I had contributed 600 in the beginning, remember?)
For all practical purposes, a shareholder is an owner of the company to the extent of his shareholding. The gentleman holding 5% share will receive 5% of the profits of the company as dividends when the same are given out. In all major decision involving the running of the business, each shareholder has voting rights and the weight of their vote is in accordance with their shareholding.
Now we come to the more interesting part.
A shareholder of a “public” company (not to be confused with government owned company) is free to sell his shares to anyone else. This is basically what happens in the share market (BSE, NSE, NYSE, etc). People buy & sell shares of the hundreds of companies listed on the share market/stock market (Shares & Stocks are the same thing). The company is NOT involved in these transactions. If a company is doing well, people would love to own a part of it, thus the price of shares of that company would increase due to the rise in its demand. Mr. A who had bought 1 share of my company at Rs. 100, now sells it to Mr. B at Rs. 120. That 20 rupees is solely Mr. A’s gain. Mr. B now has 1 share of the company.
However, irrespective of the price at which people buy/sell shares in the stock market, the company would treat the price of each as Rs. 100 only. That's the price at which it had originally sold the shares in the public offering. That price is called the face value. The voting rights & dividends are based on face value. The price at which people buy/sell in the stock market is the market value.
Now you might be wondering, why is the stock market so bustling? Are people really eager to own a part of companies?
Not really. Most people participate in the stock market to make gains out of the rise and fall of the share prices. That's called day trading. When people feel that the share prices of a company is going to rise as it is doing good, they buy the shares of that company, only to sell later when (& if) the price actually rises. So day trading is all about speculation. If your hunch is good, you make money; if your guesses go bad, you lose.
However, saner minds participate in the share market with a motive of investment. They buy shares of a company they feel might do well in the long run. They study the performance, vision, quality of the incumbent management, robustness of the products/services of the company before putting in their money. They also keep in mind the overall prevailing health of the economy or particular sectors thereof before investing. They use their voting rights judiciously and enjoy whatever dividends the company doles out.
Sensex/Nifty are just aggregates of share prices of a bunch of companies. We cannot track all the shares at a time. Thus we make an index out of a basket of shares to understand the mood of the market. Sensex and Nifty are indexes.
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Ben Ezra, Addicted to the stock market
The unit of ownership of a company is usually referred to as a "share." It is a single unit that represents equity in the company's capital structure. The owners of shares are called "shareholders." The distribution of shares in a company indicates the distribution of ownership in the company.
A share's value in a company or an investment is based on the price at which a share is sold in the market. One basic measure of a company's worth is market value, which is the number of outstanding shares multiplied by the price of a share.
A share market is where shares are either issued or traded in.
A stock market is similar to a share market. The key difference is that a stock market helps you trade financial instruments like bonds, mutual funds, derivatives as well as shares of companies. A share market only allows trading of shares.
The key factor is the stock exchange – the basic platform that provides the facilities used to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers. India's premier stock exchanges are the Bombay Stock Exchange and the National Stock Exchange.
THERE ARE TWO KINDS OF SHARE MARKETS – PRIMARY AND SECOND MARKETS.
Primary Market: This where a company gets registered to issue a certain amount of shares and raise money. This is also called getting listed in a stock exchange. A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called an Initial Public Offering (IPO). The company thus becomes public.
Secondary Market: Once new securities have been sold in the primary market, these shares are traded in the secondary market. This is to offer a chance for investors to exit an investment and sell the shares. Secondary market transactions are referred to trades where one investor buys shares from another investor at the prevailing market price or at whatever price the two parties agree upon. Normally, investors conduct such transactions using an intermediary such as a broker, who facilitates the process.
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Suhani Varma
In India, people are like to save their money for their future expenses. The stock market provides them an opportunity to invest and earn money through it, as the growing Indian economy and purchasing power of Indians. Over a billion, only 18 million Indians are invested in equities and 10 cities contributed to 80% of trading volume and it increase day-by-day.
A stock market or a share market is the place where trading of share (equities) is taking place between two parties, one is the buyer & one is the seller, both gets the revenue and losses in this process. This is a risk taking process of earning money. Here trading is not only in equity but also in financial instruments like commodities, precious metals, agriculture products and foreign currencies.
In cash trading, buying and selling of financial instruments are done for an immediate delivery, also called as Spot market. It trades in two options, one is in equity-shares and other one is debt-bonds (Government and Mortgage bonds). Here deal is done in 2 to 3 business days. It may be Exchanged or an OTC – over The Counter. In Exchange peoples mutually buy and sell their securities and other financial instruments, on the platform of BSE-Bombay Stock Exchange and NSE-National Stock Exchange. Both have a similar trading mechanism, hours and operating principle. All major business in the country is listed on both of these exchanges.
In future trading, you can buy shares or any financial instruments at present, but its payment and delivery occurs at a future specified date. Both types of trading have risk at their own levels, Cash is risky at an Intraday trading because your cash payment, is done and there is no way to return back if your loss, future is less risky in Intraday trading, just the opposite happens in future trading, but we can only buy in cash trading in holdings or positional trade.
Cash trading is done when a trader has money in hands which is different from trade on margin where trader took credit from his broker for trading in the market. In cash trading trader can hold his share/financial instrument as long as he want and face profit/loss according to market changes. Here, the possibility of earning profit is much higher than any other method of investing. It is unfeasible in nature. But on the other hand, it has a high brokerage charge and taxes for delivery trading. It has 10 times more brokerage than marginal trading, but we can decrease this amount by opting for the online share trading portal, here we give less amount in brokerage but still more than marginal trading brokerage.
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Adrian John Cartwood, Businesses? Had one
If you start your own company, then you own 100% of the shares in it. As your company increases its profits, then it is worth more.
If you keep the growth steadily increasing for a few years it's possible that you will be able to sell the company to a private buyer for 3 to 5 times it's yearly profit.
So, if the company cost you $10,000 to start, but you managed to increase its profit to $10,000 a year, then you might be able to sell it for (say) $40,000.
Since you owned 100% of it, then your shares just increased from $10,000 in value to $40,000. Well done!
Now, let's say that you decided instead to start the same company with a friend:
In this case you each own 50% of the shares in the company, but you (probably) invested $5,000 each to start the company. When you sell it for $40,000 a few years later, you will each get $20,000.
That's the same increase: each $5,000 invested in shares in your company, returned $20,000 to each shareholder.
Now, let's imagine that instead of selling the company, you buy a competitor of exactly the same size for $40,000 so that you can begin to grow quickly.
In this case, your company is worth $40,000, but where will you find another $40,000 to buy the competitor?
The answer might be to find (say) 4 investors, each willing to put in $10,000:
Before the purchase, you and your cofounder each own 50% of a $40,000 company.
After the purchase, you and your cofounder will each own 25% of an $80,000 company.
The 4 investors will stump up the $10,000 each to buy the new company, and split the other 50% (12.5% each) between them.
Congratulations!
Now you will need:
- A new Shareholder's Agreement, setting out the rights and obligations of the original founders/shareholder and the investors (eg who makes the various decisions relating to the running of the company? how are the salaries for the founder/managers set? Who can sell their shares and who can buy them? etc)
- A board of directors, probably consisting of the two founders and one or two of the investors
- Better quality financial reporting and statements
- But, possibly the most import (and contentious) issue that will keep cropping up is how will the (hopefully, ever increasing) profits be distributed between increasing the company's working capital (Retained Profit) and the founders and investors (Dividends)? This may be decided by formula via the Shareholder's Agreement or decided annually by the Board of Directors (oh what fun these meetings can be!)
It's important to note that any dividends that you do issue will be split proportionally amongst the shareholders:
Let's say that you now make $20,000 profit AFTER TAX and decide to keep $10,000 to help grow the company and distribute the other $10,000 as dividends:
Each founder will get 25% or $2,500 dividend (plus their salary, of course), and each investor will get 12.5% of $1,250.
- and the list goes on ...
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