Introduction to Stock Market and Stock Exchange
Stock Market is a place where people buy and sell shares of publicly listed companies. To put it into simple terms, it is a platform to exchange shares.
The main purpose of the Stock Market is to help you facilitate your transactions. So for example, if you buy a share, the stock market helps you meet the seller and vice versa.
A stock market is a place that does not exist in brick or mortar form but in a digital form. You can access the market digitally from your digital devices and conduct your transactions.
The most important thing is you can only access the stock market through a registered website/intermediary called stockbroker.
A stockbroker is also known as a registered representative (RR) or investment advisor. Most of the stockbrokers for a brokerage firm and handle customers of individuals or an institution.
On the other hand, the stock exchange is a centralized location where the shares of publicly traded companies are bought and sold.
Stock Exchanges are the entities that facilitate trading in shares by laying down the conditions for listing, providing services to individuals, traders, brokers and keeping track of fluctuations and trading volumes.
Now you must be wondering what is the difference between Stock Market and Stock Exchange, right?
Difference Between Stock Market And Stock Exchange
|Stock Market||Stock Exchange|
|It is a common term for all kinds of stock trading||It is an entity that facilitates such trading|
|Comprises OTC, electronic and stock exchange trading||It is an integral part of the Stock Market.|
|A Stock Market is a meeting place for buyers and sellers of the stock||A Stock Exchange is an entity that works with a profit motive.|
As you have understood the basic meaning of Stock Market and Stock Exchange, let me give you a clear perception of why would anyone like to invest in the Stock Market?
Let us understand what would happen if one chooses not to invest. Let us assume you earn Rs 50,000/- per month and spend Rs. 30,000/- towards your cost of living which includes housing, food, transport, shopping, medical and many more. At the end of the month, you are left with Rs 20,000/-.
Let’s assume you retire after 20 years, your total savings will be Rs 1.7 Crores only. Practically speaking, that will only last for only 8 years after your retirement.
Instead of keeping your cash idle, you can invest in shares and let’s say you have a growth of 12%. In the first year, you must retain Rs. 240,000/-, When invested 12% per annum. In the 20th year your savings Rs 4.26 Crores. This is 2.4 times the regular amount.
Having figured out the reason to invest, the next thing would be where and what the returns will be.
Asset Class of Stock Market
When it comes to investing you have to choose which ‘class’ suits your risk and returns.
A Class is a category of investments with exact risk and return fundamentals. The below mentioned are four popular classes:
1. Fixed Income
These are some of the investible instruments with very limited risk.
Fixed Income investments include:
- Fixed deposits offered by the bank.
- Bonds issued by the Government of India.
- Bonds issued by corporations.
The returns from fixed income instruments vary between 8% and 12%.
Investment in equities involves buying shares from publicly listed companies. These shares are traded both in the Bombay Stock Exchange as well National Stock Exchange.
The returns from equity investments can be extremely attractive. Indian Equities have generated close to 14%-15% compound annual growth rate ( CAGR) over the past 16 years.
Investing in well run Indian Companies the returns are over 20% CAGR in the long term. Identifying these types of investments require skill and patience.
3. Real Estate
This is an investment that involves transacting commercial and non-commercial land, for example transacting (buying and selling) in sites, apartments and commercial buildings.
There are 2 Sources of Income in Real-estate Investment.
- Rental Income
- Capital Income
Here in Real-estate, the transaction procedure is quite complex as legal verifications and returns cannot be exactly measured.
Here investments are on precious metals like Gold, Silver, Ruby and many more. Gold and Silver have appreciated value over the long term.
There are several ways to invest in Gold and Silver.
Types of Stock Market
As of now, you got the meaning, difference and asset class of the Stock Market. Now I am giving you an overview – Types of Stocks.
There are two types of stock in the market, which are described below:
When people discuss stocks in general they are referring to this type. The majority of the stocks are issued in this form. Basically, it represents the ownership in a company and claiming (dividends) on profits.
Over the long-run common stock means capital growth that yields higher returns than almost every other investment.
This higher return will always come at a cost i.e entail more risk. Let me help you understand this concept through an example. f a company goes bankrupt and liquidates, the common holders will not receive any money until the preferred shareholders are paid.
Preferred Shareholders are usually covered with fixed dividends forever. This stock is completely different from common stock, which has a variable dividend that is not guaranteed.
In the event of Liquidation/Bankruptcy preferred shareholders are paid before common shareholders. These holders can buy shares of the company at any point in time for any reason i.e for a premium price.
Few people in the stock market think it is more like debt than a share. I would like to define it as a share that is in between Bonds and Common Shares
Want to know about Bonds kindly visit this video.
As you got the overview of the Stock Market, now let me give you a brief on the Stock Exchange.
What is the Stock Exchange?
Under the Securities Contract (Regulation) Act, 1956, the term stock exchange is defined
“As an association, organisation or body of individuals- whether incorporated or not-established for the purpose of assisting, regulating and controlling the business in buying, selling and dealing in securities.”
In a simple sense stock exchange is an organized market, where second-hand and third-hand securities are bought and sold in a safe, quick and convenient manner.
Our India has got a list of Stock Exchanges, but before let me tell you why so many Stock Exchanges are required?
One reason for listing on several exchanges is that it increases a stock’s liquidity, which means that there are plenty of shares available for market demand.
List of Stock Exchanges
1. Bombay Stock Exchange( BSE)
BSE was established in 1875, it is Asia’s oldest stock exchange and it is the largest stock exchange in India. The market cap of BSE stood at $2.9 trillion.
2. National Stock Exchange (NSE)
NSE was established in 1992. It is the first stock exchange to provide a decentralized digital trading platform for investors. The market cap of NSE is $2.17 trillion.
3. Calcutta Stock Exchange( CSE)
CSE was established in 1908. The SEBI(Securities and Exchange Board of India) has ordered CSE to exit. The matter is currently being heard at Calcutta High Court.
4. India International Exchange ( India INX)
INX was established in 2017. This is the first international stock exchange and it is the subsidiary of BSE.
5. Metropolitan Stock Exchange ( MSE)
MSE was established in 2008. This basically clears and settles contracts involving multiple asset classes.
How Not to be a Fraudster in Stock Market?
Becoming a defaulter and fraudster when it comes to the stock market is quite inevitable. It is normal for a complete beginner to disobey the rules of the stock exchange and become a defaulter. Here I have mentioned some of the top 6 ways which can prevent you from becoming one:
- Do your Stock Market Research.
- Don’t delay your investment journey
- Do think about the long-term
- Don’t Spring in like a joker – For example, people invested in bitcoin so they can have a better future but it dropped.
- Do invest in a different source of Income
- Don’t Ignore Taxes.
You can make a lot of money investing in stocks or trading in the stock market, but it is not something for the new investors.
Care must be taken when it comes to stock investments. You must have a solid understanding of stocks and how they trade in the market or risk losing money in a volatile type of investment.
If you are a beginner in the Stock Market, do enroll in our Stock Market Certification Courses at Verzeo.
Whew! Seems like I covered a lot. I hope that this blog has given you a good idea of what the Stock Market, as well as the Stock Exchange, is.
Frequently Asked Questions
Which is the No 1 stock market?
In the 21st century, the New York Stock Exchange has topped the list. It has a list of the major stock exchanges.
Can we sell stocks in cash?
Apart from Demat Account, you will require an authorized broker to place an investor trading request and can buy and sell stock through Cash.
What time of day is best to sell stock?
The best hours to buy and sell stocks are between 9:30 Am to 0:00 Am. This is the prime hour to make a lot of money in a short time.
What month is best to buy stocks?
Usually, this basically depends on the country you are in. Let’s say I am Indian and here the best time to buy a stock is in November.