Ultimate Guide To Know How The Stock Market Works

Key Takeaways:

• The stock market is a platform where shares of publicly listed companies are traded.

• Buying shares means owning a portion of the company, and your returns depend on its performance.

• Orders like market, limit, and stop-loss allow you to control how and when you buy or sell shares, depending on your investment strategy.

• A company goes through an IPO before selling shares to the public. 

• Once listed, the stock's price fluctuates based on the company's performance and market conditions.

Diving into the stock market is a risky venture, especially when you are starting out. However, higher risks in investments often translate into higher rewards. The capital market is not as mysterious as it may sound. 

The first step is to understand the stock market for beginners so you can become a confident investor. Read more to find out how the market works and how you can begin your investment journey.

Stock market is an exchange that facilitates trading the shares of publicly listed companies. A share is a unit of a company’s ownership that you can buy. For instance, if you have a share of a company with a total share of 100, you’ll be a 1% owner of that company. 

Companies often sell their ownership shares in the stock exchanges to the general public to raise money. In India, the Securities and Exchange Board of India (SEBI) regulates stock markets and oversees their functioning. 

If the company does well, the stock price rises and you can sell it for a profit. However, if the company struggles, the price falls and you may lose money.

Buying and selling stocks happen through exchanges and brokers. You deposit money into your brokerage account, choose stocks, and place an order. Here are the different types of orders you can place:

Before a company sells its shares to the public, it goes through an Initial Public Offering (IPO) process. This is when the company first lists its stock on an exchange.

1. Private Company: The company is owned by founders and early investors.

2. IPO Stage: The company sells shares to the public for the first time.

3. Publicly Traded: The stock is available for trading on exchanges.

4. Growth and Decline: The stock price changes based on company performance and market conditions.

Read Also: Ultimate Guide to Stock Market & Stock Types

Stock prices change every day based on several factors. Learn more about them. 

• Supply and Demand: If more people want to buy a stock, its price rises. If more people want to sell, its price falls.

• Market Sentiment: If investors feel positive about the economy, they buy more stocks, pushing prices up. If they are worried about it, they sell stocks, causing prices to drop.

• Company Performance: If a company reports good earnings, the stock price usually rises. If earnings are poor, the stock price falls.

Understanding the beginner stock market guide takes time, but learning the basics helps you make better investment decisions. Start small, research well, and always manage risks. With the right approach, you can navigate the stock market confidently!

Check Also: Understanding Stock Market Indices

A stock exchange is similar to a market where individuals purchase and sell shares in businesses. The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are India's two leading stock exchanges.

As a beginner, you may use a broker to put your trades through. There are two types of brokers:

• Full-service Brokers – They offer research, advice, and advisory services but at a higher cost.

• Discount Brokers – They allow you to trade at reduced prices but do not provide investment advice.

If you’re just starting, discount brokers like Zerodha, Upstox and Angel One are popular in India because they charge low fees and have easy-to-use mobile apps.

Yes, IPOs (Initial Public Offerings) can be risky because you’re investing in a company that’s just entering the stock market. There’s limited historical data, so it’s hard to predict how the stock will perform. Some IPOs give great returns, while others disappoint. Before investing, check the company’s financials, future growth potential, and whether its IPO is fairly priced.

Stock prices fluctuate daily due to various factors, including such as supply and demand, company financials, market sentiments, and global economic factors. 

Yes! Most stocks can be bought for a few hundred or thousand rupees. Systematic Investment Plans (SIPs) in mutual funds also enable you to invest as little as ₹500 a month. Equity mutual funds are related to market performance and may be a safer way to invest. The trick is to begin small, learn, and then increase your investments gradually as you build confidence.

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