The stock market is a marketplace where shares of publicly listed companies are bought and sold. When a person purchases a share, they acquire a small ownership interest in that company. Stock prices change continuously based on factors such as supply and demand, company performance, economic conditions, investor expectations, and market sentiment.
What You’ll Learn in This Article
1.What the stock market is ?
2.How stocks and shares work ?
3.Difference between investing and trading ?
4.What causes stock prices to rise and fall ?
5.Basic terms every beginner should know ?
What Is a Stock?
A stock represents ownership in a company. When a company issues shares to the public, those shares can subsequently be traded in the market. The price of a stock can fluctuate depending on market conditions and expectations about the company’s future.
For example, if a company has 10 lakh shares outstanding and you own 100 shares, you own a small fraction of that company. The value of your holding changes as the market price of those shares changes.
How Does the Stock Market Work?
At its simplest, the market operates through buyers and sellers. A buyer places an order to purchase shares, while a seller offers shares for sale. When compatible orders meet, a transaction takes place.
In India, the two major stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Investors and traders generally access these markets through registered stockbrokers and trading platforms.
Trading vs. Investing
These terms are often used interchangeably, but they describe different approaches.
Investing generally involves purchasing assets with a longer-term perspective, often based on a company’s business performance, financials, and future prospects.
Trading generally focuses more on shorter-term price movements. Traders may use tools such as candlestick charts, technical indicators, price action, and market structure to study price behaviour.
Neither concept needs to be presented as a guaranteed method of making money. Both involve market risk and require an understanding of how financial markets operate.
Why Do Stock Prices Move?
Stock prices can move because of numerous factors, including:
- Company earnings and financial results
- News and corporate announcements
- Economic conditions
- Interest rates
- Industry developments
- Supply and demand
- Investor expectations
- Market sentiment
- Global events
A stock’s current price therefore reflects not only what is happening today, but also what market participants expect could happen in the future.
Key Terms to Know
| Term | Meaning |
|---|---|
| Share | A unit representing ownership in a company |
| Stock Exchange | A regulated marketplace for buying and selling securities |
| Market Price | The current price at which a security is trading |
| Bull Market | A period generally associated with rising market prices |
| Bear Market | A period generally associated with declining market prices |
| Volume | The number of shares or contracts traded during a period |
| Market Capitalisation | The total market value of a company’s outstanding shares |
| Dividend | A distribution that a company may make to shareholders |
| Broker | An intermediary through which market transactions are executed |