Rudiments of Stock Market

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” — Warren Buffett

Are you also inspired by watching Scam 1992 and dream of changing your fortune but still muddled with the terms used in the stock market such as:

1. What is stock and what is share? Oh Yes they are different
2. What is demat account, trading account
3. What the hell is market value and face value
4. How exactly I should start
5. What is brokerage and brokerage fees
6. Who are financial brokers
7. What should be my first stock
8. Should I invest in electricity as Tesla seems to be future but wait a second Tata also announces the soon to be launch electric car.

And I hope you must be having a lot more questions like what is NSE and BSE. Are Sensex and Nifty related. Let us start understanding them. I will be explaining basics in this part.

Difference between a share and a stock

These terms are often confusing and they should be as they basically meant the same as share can be considered as a part of stock. According to their definition share is a holding in a single company and stock is a holding in one or more companies. Still confused? Let us dive into more details

In Layman’s terms when you use a term “share” you mean a part of something. Same goes in the share market when someone tells you they have 10% share of some company that means they own 10% of the company. Let us understand this with an example.

Consider a company X whose current market value is 50 lacs and now it needs 50 lacs to expand. So what it can do, it can ask people to invest in the company and become part of it and take ownership according to the investment. Now comes the concept of face value.

What is Face Value

Face Value is the original value of a particular share. Now since the company needs 50 lacs it can open 5 lacs shares at a face value of say 10. Now it depends upon how much you invest, which will give you that much percent of ownership. Say you bought 1 lac shares at a face value of 10 that means you now own 20% of that company

=> [(1lac*10)/50lacs]*100

Now one question that you must be thinking that why I should invest what is my benefit or how I would earn profit. Will the company’s profit will be shared by shareholders. Answer is absolutely NO. Here comes the concept of Market Value.

What is Market Value

According to the company’s performance, revenue, etc. the face value increases or decreases which is called Market Value. For example You bought 1 lac shares at a face value of 10. So your investment is of 10 Lacs and now the market value of a share grows to 11 and you sold all your shares you will get 11 Lacs which gives you a profit of 1 Lac but share market is not always about profit. If the market value goes down it can incur you loss.

Now lets see where all this trading happens and what all things we need to start trading.

There are two stock exchanges known as National Stock Exchange (NSE) where around 14000 companies are listed and Bombay Stock Exchange (BSE) where around 50000 companies are listed. In these two exchanges all the trading of shares happen. Movement of market in NSE is known as NIFTY and in BSE is called SENSEX. We will get into these to in next parts. Now let us see how you can start trading.

*The only thing you need to start is a Demat Account*

What is Demat Account

The account that needs to maintain your records of buying and selling of shares is known as Demat Account. You need to link your savings account to demat account which is further linked to trading account. Trading Account is different from demat account. You need trading according to buy and sell shares and demat account is used to keep records and if you want to transfer that amount into bank account savings account comes into picture.

Savings Account <=> Demat Account <=> Trading Account

Hope you enjoyed this and let me know if you want to learn more about stock market :)