siliconindia | | SEPTEMBER 20218IN FOCUSWHAT IS SHARE MARKET AND HOW DOES IT WORK?WHAT IS SHARE MARKET AND HOW DOES IT WORK?By si Teamven if you are not a regular investor, the chances are that the share market must have caught your imagination at one point or the other. The share market in India has emerged as one of the most popular avenues of investment for both individual and institutional investors.SO, WHAT IS A SHARE MARKET?The share market, also known as the stock market or equity market, is a financial market where shares of listed companies are issued, bought, and sold.The share market comprises stock exchanges which work as facilitators in the trading of shares, bonds and derivatives. The share market works electronically through the internet and online stockbrokers.A stock exchange is a centralised location where the shares of publicly traded companies are bought and sold.WHAT ARE THE PURPOSES OF A SHARE MARKET? The share market serves two important purposes: allowing companies to raise money from the public to fund and expand their businesses and enabling investors to own a publicly-listed company and earn profit.HOW INVESTORS MAKE MONEY IN THE STOCK MARKET?Investors can earn profit from the stock market in two ways: from the rise in the stock price and from dividends that some stocks pay from time to time. Let us understand how. If you bought a share of a company at, let us say, at Rs 200 and if its price rises to Rs 250 after six months, you make a profit of 25 percent if you sell it at this price.Similarly, dividends are a source of profit for investors. Many companies listed on the stock market pay regular dividends either in cash or as additional shares of their stock. Dividends are a portion of a company's profits which it distributes to its shareholders as a reward for loyalty. The more stocks you own, the more dividend you earn.HOW THE SHARE MARKET WORKS?Before you get access to a company's shares to trade on the stock market, a company has to first go public in a process known as an initial public offering (IPO). This is the time when the stocks are created and sold for the first time. This happens in what is known as the primary market. The shares are then listed in the secondary market, what we commonly know as the stock market. E
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