Let us take an example of Mr. X, who owns a clothes shop which is doing normally well after a couple of years. He opens five grow branches in a state and after ten good years, he opens 30 branches across India. The business is doing exceptionally well now Mr. X wishes to expand further and open multiple branches across the world, but for this, he would need more funds. Let's say 5,000 cores, which Mr. X is not having presented. Now to raise this money he has multiple options - like approaching an individual financier taking a loan from a bank etc. But all these options would require him to pay interest on the borrowed money which would eat away his profits and what if these new branches do not do well then there would be tremendous losses. So what next now Mr. X would turn towards stock markets.
He will approach the public and raise money; this is an initial public offering. X company would issue shares that are a partnership in the company to people and if people feel that the company is likely to do well then they can become partners in the company. But buying those shares at a stipulated price now that weighs. Mr. X raises interest fee money and his risk also gets distributed amongst people and the IPO will get launched.
In the primary market and the company will get listed in the secondary market on the stock exchange where the shares will get traded now this combination of the primary and secondary market is called share market that as simple as possible now one benefit the people derive by buying shares. Now when the shares of the company get listed, the training starts, and when the share prices go up people will make profits by selling those shares at higher prices. That's it so this is a win-win deal for people. Mr. X and also the country which benefits indirectly and yes to make sure that all these transactions happen clearly without any cheating. Say B is The Securities and Exchange Board of India. It acts as a regulatory body. For example, like we abundant stock advisors our assay is a registered research analyst Group license to provide stock recommendations. Now if this service is provided without the registration form saying B then it is deemed illegal. So say B has many kinds of rules and regulations which ensure that the investor interest is safeguarded and you can safely invest in the stock markets.
So now let's see how the stock market works and how a complete buy and a sale transaction happen. Now the buyer and the seller come together in the secondary market to buy and sell shares. The buyer feels that Mr. Raul's company will do well in foreign countries and hence he is interested in buying its shares so the buyer he logs in his trading account and places a buy order for say N number of shares now. There are millions of such buyers and sellers in the market and so to handle transactions between them we have brokers.
Without a trading account, you cannot trade. Now the broker passes on the buy order to the exchange where the stock is listed. So NSE and BSE are the two prominent exchanges in India and it is the exchange that actually connects the buyer and the moment. The exchange gets a cellar it confirms the buy order with the broker. The broker then completes the transaction of buying and selling. Now that the transaction is complete. The seller should get his money and the buyer should get delivery of shares. So whose responsibility is this?
The Clearing House - the Clearing House makes sure that the give-and-take between the buyer and the seller happens smoothly. The Clearing House gives a guarantee to both the buyer and the seller that this transaction of theirs will be executed successfully at all costs.
The moment the trade gets completed the buyer gets the shares in his Demat account from the seller and the seller he gets money in his account from the buyer symbol and by the way your Demat account is with your broker and you get this with your trading account. So that's how a complete buying selling transaction is executed.
Now let's try and understand how a stock price moves and how the buyer and seller make money in the process. Now both the buyer and seller are tracking the share price of Mr. Raul's company and there comes news at 10 o'clock that in 1 month the ABCD Company has made a profit of 100%. Now, this is big positive news at 10 o'clock. The share price was 3000 but now a seller wants 3,100 per share. Fortunately, a buyer is ready to buy the shares at 3100. Now at one minute past 10, the share is coating at a price of 3100 and now another seller wants 3,200. Another is ready to buy the shares and this price at 10 past 3 the share is coating at a price of 3200. This continues and in just 3 minutes the share price rises by 10 percent so the stock is rising because the demand is rising.
The buyers are feeling that the company will do well in future and sellers are selling because they see that the company might not do well in the future so technically it's just a different perspective which the buyer and the seller have above the company which is indeed driving the share price. The buyers are always bullish and the sellers are always bearish.
If there are more buyers in the share its price will go up and if there are more sellers its price will come down. That's how the prices of shares go up and down. I mean it's as simple as that now we will see the different types of players investing in the stock markets and we as retail investors should fall in which category.
To make money so the first type is Intraday Trader. This guy buys shares in the morning and sells them before the markets close on the whole day. He buys and sells many shares. The second type is the Scalper. This is a guy who buys shares in bulk in huge quantities and sells them the moment he sees very little profits. Now the third type is Swing Trader. This guy buys shares waits for a little longer to share a day or two and then sells the shares. Now all these players fall in the trading category and most of the time they are in tremendous losses because traders rarely make money in the stock markets. Today they make 100 rupees and tomorrow they lose 200 rupees - that's the game that goes on.
Investor Category - the first type of player under this category is the growth investor. This guy buys shares of those companies which in the future unlikely to show phenomenal growth. This guy holds these shares for a longer duration one year, two years, three years, with a lot of patience, and then when he sees that the share prices have gone up significantly he sells them. The second type of player in this category is Value Investor. This guy buys shares of companies that are already doing good and profitable. But for some reason, its share price is very low today. This guy too shows a lot of patience and holds the shares for a longer period 6 months, 1 year, 2 years, and when the share price goes up significantly he sells that. It is clear that stock markets should be treated as an investment platform; do not make it a trading platform.
Traders do not make money in the stock markets. Investors can make money in the stock markets, just like you invest your money in real estate. It's a clean investment and will give your profits after a decent period of time.
You will have to hold on to your shares for a decent period of time. You will have to select the right companies to invest which will give you huge profits. Now repeating again if you do trading in stock markets you will lose your money. You will get lost and confused in the herd of buyers and sellers. You will never be able to decide correctly which stocks to buy and sell. Fear and greed will start overpowering you and eventually, you will end up losing your capital on. So try and become an investor in the stock markets.
If your money doesn't start
working for you then you may have to slog your whole life. The only mantra to
wealth creation is that your money should work harder than you, even while you
asleep and that would be possible only when you invest right and invest early.
Don't wait for a big amount. To get
accumulated start with whatever you have. It's very good to experiment with
smaller amounts you will get to learn a lot. Start small but make a start.
In this article, I have explained to understand the basic concepts of Share market workflow & expecting, you all will understand my point of view.
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