Basics of Stock Market - By Suryansh Sharma

Basics of Stock Market

By Suryansh Sharma

Investment & Need of Investment

• The money you earn is partly spent and the rest is saved for future needs.

• Instead of keeping savings idle, you can use them to earn returns. This is called investment.

Why invest?

1. To earn returns on idle money

2. To generate funds for specific life goals

3. To prepare for an uncertain future

When to Start Investing

• The earlier you start, the more time your money gets to grow.

• Early investing increases wealth through compounding.

Three golden rules of investing:

1. Invest early

2. Invest regularly

3. Invest for the long term

Where to Invest

1. Physical Assets

• Real estate

• Gold and jewellery

• Commodities

2. Financial Assets

• Bank fixed deposits

• Post office savings schemes

• Insurance, provident and pension funds

• Shares, bonds, debentures and other securities

Short-Term and Long-Term Investment Options

Short-Term Options

1. Savings bank account

2. Money market or liquid funds

3. Bank fixed deposits

Long-Term Options

1. Post office savings

2. Public Provident Fund (PPF)

3. Bonds

4. Mutual funds

Before Investing in the Market

Before investing, it is important to understand the basics of the stock market.
You should be familiar with:

• Stock exchanges (BSE, NSE, etc.)

• Trading terms

• Investment products

• Market regulators like SEBI

Why Trade in the Stock Market

1. You can start with a small amount of money

2. Requires less time compared to running a business

3. Easy to convert investments into cash (liquidity)

4. Simple to learn, but only with proper knowledge of basics

You should clearly understand:

• Shares and companies

• Dividends and types of shares

• Debentures and securities

• Mutual funds and IPOs

• Futures and options

• Stock exchanges and indices

• Trading terms and strategies

Stock Market System

• Primary Market

• Secondary Market

Primary Market

• The primary market is where new securities are issued.

• Governments and companies raise funds here.

• Securities may be issued at:

  • Face value

  • Discount

  • Premium

• Types of securities:

  • Equity shares

  • Debt instruments

Why Companies Issue Shares to the Public

• Most companies start with promoter capital and bank loans.

• For long-term growth, they need more funds.

• They raise this money through a public issue.

• Investors subscribe to shares, and the company allots them as per SEBI rules.

Secondary Market

• This is where already issued securities are traded.

• Most stock market trading happens here.

• Includes:

  • Equity markets

  • Debt markets

Primary vs Secondary Market

• Primary market: New securities issued to raise capital

• Secondary market: Existing securities traded among investors

Equity Investment

• Buying a share makes you a shareholder.

• Shares are also called equities.

• Equities have the potential to grow over time.

Key points:

• Help achieve long-term financial goals

• Historically provide higher returns over long periods

• High risk but also high reward

• Require careful study before investing

Types of Investors

1. Speculators – Take high risk for quick profits

2. Hedgers – Reduce risk using financial instruments

3. Arbitragers – Profit from price differences in markets

Important Stock Market Jargons

• SENSEX

• Bull market

• Bear market

• Delivery

• Intraday

• Dematerialization

• Long buy

• Short selling

• Stop loss

• Portfolio

• Tick size

• Averaging

• Booking profit or loss

• Market crash and circuit limits

• Rights issue

• Bonus shares

• Stock split

Derivatives and Index-Related Terms

• NIFTY 50

• NIFTY 100

• Futures

• Future contract

• Margin

• Premium

• Discount

• Market lot

• Rollover

• Options

• Call option

• Put option

• Long position

• Short position

• Expiry