Imagin how it feels when you own a tiny piece of ownership
in a company of your choice, it’s not about a company that carries on its
business activities within the geographical boundaries but also includes
company having strong goodwill among the society and even beyond territories.
There are some people who do not want to take part in the
management, business operations of the company rather they prefer high return
on their investments, either in the form of dividend or increase in the market
value of shares, and thats what stock market is.
Mr. A who was a student in the year 2000 being an
entrepreneur establishes a company ABC with the capital of rupees 1 lakh today
in the year 2026 took the market valuation of it to rupees 10 Lakhs.
Now Mr. A’s company ABC. wants to grow it’s business
operations to cover broader market but due to limited funds Mr. A cannot afford
huge funds individually, now Mr. A’s company has two options:
1.
Borrow funds from outside in the form of loan,
or credit purchase
Here ABC has to pay fixed interest to the
lenders in irrespective of market conditions, Company does not give outsiders part
in the ownership but has to incur huge cost on payment of interest and
repayment to the lenders. Corporate bonds are the best example of this kind of
investment where market volatility doesn’t affect the value of return to the creditors
of company ABC.
2.
Issue of share capital
Here, company gives shareholders part in
the ownership of company and not risk bearing huge cost of repayments and interest
on loans. Now question comes one’s mind where to issue shares and how to find
investor to buy and sell shares. The answer is Share Market which is
also known as stock market.
Before we understand what stock market is and how it works, it is also important for us know why share market is also
called stock market. It is called stock market because not all the investors who
bought shares, want to be owner in the company in which they have invested
rather they transact or trade with shares like a goods which are purchased and
sold on profit and loss, that is why they are interchangeably known.
What is Stock Market/ Share Market
In 19s investors and companies used to struggle
for transacting shares, in the absence of technology they had no facility to
come on a table to deal, stock market is the platform that facilitates smooth
transfer of securities from buyer to seller, however these trades may be
subject to tax and charges, individual cannot directly reach out to stock market,
they have to set buy and sell order through intermediaries like, Stock Brockers.
Here, ABC limited a company issues 1000 shares
of rupees 100 each, the total issues share capital of ABC Limited is 1,00,000.
A wants buy 100 shares at the rate of 100
rupees, the total value of shares purchased by A are 10,000.
Post one year A sells these 100 shares to B
at the rate of 150, the total value of shares sold by A to B is 15000, profit
earned by A is 15000-10000.
This is the way how stock market functions
and how stock market, how the value of share increases and decreases, however
these price fluctuations are highly influenced by different indicators and factors.
Corporate deals, change in the management, big orders, rumors, war are some of
the highly influencing factors of stock markets. If you knew how to invest in stock
market let us know in the comment how your trading journey started.
