What is Share Market: The stock exchange is a marketplace where buyers and sellers meet to trade publicly traded stocks at particular times of the day. The terms’stock market’ and’share market’ are frequently used interchangeably. The main difference between the two is that while the former is only used to trade stocks, the latter allows you to trade a variety of financial instruments such as bonds, derivatives, and currency.
The principal stock exchanges in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
Types Of Share Markets
Stock markets can be further classified into two parts: primary markets and secondary markets.
1. Primary Share Markets
The main market is where a firm first registers to raise capital through the sale of shares on a stock exchange. This is known as an Initial Public Offering (IPO), and it occurs when a firm becomes publicly registered and its shares are available for trading among market participants.
2. Secondary Market
The secondary stock market is where a company’s new securities are exchanged after they have been sold in the primary market. Investors have the ability to purchase and sell shares among themselves at current market values. Typically, investors would undertake these transactions through a broker or another intermediary who can help them.
What Is Traded On The Share Market?
There are four categories of financial instruments that are traded on the stock exchange. These include:
A share represents a unit of equity ownership in a company. Shareholders are entitled to any profits that the company may earn in the form of dividends. They are also the bearers of any losses that the company may face.
To undertake long term and profitable projects, a company requires substantial capital. One way to raise capital is to issue bonds to the public. These bonds represent a “loan” taken by the company. The bondholders become the creditors of the company and receive timely interest payments in the form of coupons. From the perspective of the bondholders, these bonds act as fixed income instruments, where they receive interest on their investment as well as their invested amount at the end of the prescribed period.
3. Mutual Funds
Mutual funds are professionally managed funds that aggregate the money of many investors and invest it in a variety of financial instruments. Mutual funds are available for a wide range of financial instruments, including equities, debt, and hybrid funds, to mention a few.
Each mutual fund scheme issues units with a specific value, much like a share. You become a unit holder in a mutual fund scheme when you invest in such funds. When instruments in that mutual fund scheme generate money over time, the unitholder receives that revenue in the form of the fund’s net asset value or dividend distributions.
A derivative is a security whose value is derived from another security. This can include a wide range of assets, including stocks, bonds, cash, commodities, and more! Buyers and sellers of derivatives have conflicting expectations of an asset’s price, therefore they engage into a “betting contract” for its future price.
Stock investment is now widely regarded as one of the most effective strategies to build long-term wealth. Any investor may use the stock market to help them accomplish their long-term financial objectives if they have a smart investing plan.