Share Market Explained by Sohail Khan | Learn Everything on Investing Money

 Hello friends

Come, let us talk about the share market

What is the share market? Why is it in place? How does it work? What are its advantages and disadvantages?

And how you can invest money in it.

Share Market Explained by Sohail Khan  | Learn Everything on Investing Money

Let us find out more about share markets in this blog

The stock market, share market, or equity market- all three mean the same

These are markets where you can buy or sell a company's shares

Buying shares of a company means buying some percentage of ownership of that company

That is, you become the holder of a percentage of that company

If that company makes a profit, some percentage of that profit would also be given to you

If that company incurs a loss, a percentage of that loss would also be borne by you

Telling you an example of this on the smallest scale, presume you have to establish a start-up

You have 10,000 rupees, but that's not enough

So, you go to your friend and tell him to invest another 10,000 rupees and offer him a 50-50 partnership

So, whatever your company profits in the future, 50% of it would be yours. 50% of it would be your friend's

In this case, you've given 50% of the shares to your friend in this company

The same thing happens on a larger scale in the stock market

The only difference being, instead of going to your friend, you go the entire world

and invite them to buy shares in your company

Share Market Explained by Sohail Khan  | Learn Everything on Investing Money

The origin of share markets dates to around 400 years ago

Around the 1600s, there was a Dutch East India Company, like the British East India Company,

There was a similar company in the country of Netherlands today, known as Dutch East India company

In those times, people used to indulge in a lot of exploration using ships

The entire world map had not yet been discovered

So the companies used to send their ships to discover new lands and trade with faraway places

The journey used to be of over thousands of kilometers aboard a ship

There was a huge amount of money required for this

Not one person possessed such amounts of money individually in those times

So, they publicly invited people to invest money in their ships

When these ships would travel long distances to go to other lands and come back with treasures from there

They were promised a share of these treasures/money eventually

But this was a very risky affair

Because during those times, more than half of the ships failed to come back

They got lost, or broke down, or got looted. Anything could happen to them

So investors realized the risky nature of this enterprise

So, instead of investing in a single ship, they preferred to invest in 5-6 of them

So that at least one of them had chances of coming back

One ship used to approach multiple investors for money

So, this created somewhat of a share market

There were open biddings of the ships on their docks

Docks are the places where the ships come out from

Gradually, this system became successful because of the money crunch faced by the companies

was supplemented by the common people. And the common people got a chance to earn more money

You must have read in the history books

about how rich the English East India Company and the Dutch East India company became during those times

Today, each country has its stock exchange

and every country has become greatly dependent upon the stock market

Share Market Explained by Sohail Khan  | Learn Everything on Investing Money

A stock exchange is that place, that building where people buy and sell shares of the companies

The market can be divided into two types- The primary market and the secondary market

Primary markets are where the companies sell their shares

The companies decide what exactly would be their share prices

Although there are some regulations in this too

The companies cannot maneuver too much because a lot of it depends upon the demand

How much price are the people willing to pay for the company's shares

If the value of the company is 1 lakh rupees,

it sells 1 lakh of its shares and offers shares at 1 re per share

If its demand is high and a lot of people want to buy its shares,

the company would be able to sell its shares for a higher price

What the companies do nowadays is decide upon a range. There's a minimum price and a maximum price

They decide to sell their shares within that range

A point to be noted here is that every share of the company has equal value

It is upon the company to decide how many of its shares it wants to make

If the total value of the company is 1 lakh, then it may make 1 lakh shares of 1 re each,

Or it may make 2 lakh shares of 50 paise each

When companies sell their shares in the share market, it never sells 100% of them

The owner always retains a majority of the shares to keep possession of his decision making power

If you sell all the shares, then all the buyers of the shares would become owners of the company

Since they all become owners, they all can make decisions regarding that company

The individual who has more than 50% of the shares would be able to make decisions regarding the company

Share Market Explained by Sohail Khan  | Learn Everything on Investing Money

Therefore the founders of the company prefer to retain more than 50% of the shares

For example, 60% of the shares of Facebook are retained by Mark Zuckerberg

The people who have bought shares of the company can sell it to the other people

This is called the Secondary Market

where people buy and sell shares amongst themselves and trade in shares

In the Primary Market, the companies set the prices of their shares

The companies cannot control the prices of their shares in the secondary market

The share prices fluctuate depending upon the demand and supply of the shares

So the prices of the shares fluctuate depending upon the demand and supply