Share Market Explained by Sohail Khan | Learn Everything on Investing Money (part 2)

 

Share Market Explained by Sohail Khan | Learn Everything on Investing Money (part 2)

If a company wants to sell its shares on the stock exchange, then this is termed as "public listing"

If a company is selling its shares for the first time, then it is called IPO- Initial Public Offering

that is, offering the shares to the public for the first time

During the days of the East India Company, it was very easier to get this done

Anyone could sell the shares of their company to the public

But today, this procedure is very long and complicated, and so it should be

Because think about it, how easy it is to scam the people

Anyone could get listed on the stock exchange with a fake company,

and exaggerate the value and achievements of its company

They could lie to the people and the people would foolishly invest in his company

He then could abscond with the money

So it has become extremely easy to scam somebody.

Share Market Explained by Sohail Khan | Learn Everything on Investing Money (part 2)

security exchange commission of pakistan 

is a regulatory body that looks into issues like which companies should be listed on the stock exchange

and whether it is being done correctly or not

If you want to do this (i.e. get listed), then you would have to fulfill the norms of the SEC

Their norms are very strict, for example,

There need to be a lot of checks and balances on the accounting of your company

At least two auditors must have had checked your company's accounting

This entire process may take around 3 years.

More than 50 shareholders should be pre-present in the company if you want a company to be publicly listed

When you go to sell their shares but there's no demand for it amongst people

then SEC can remove your company from the stock market list

Now, how can you invest money in the stock markets?

Share Market Explained by Sohail Khan | Learn Everything on Investing Money (part 2)

However, with the internet in place you merely need three things-

A bank account, a trading account,, and a DEMAT account

A bank account because you would need your money

A trading account, allow you to trade and invest money in a company

A DEMAT account to store the stocks that you buy in a digital form

Most of the banks today have started offering a 3 in 1 account

with all three accounts encompassed within your bank account

People like us would be called retail investors, that is, common people who want to invest in the stock market

A retail investor always requires a broker

A broker is someone who brings together the buyer and seller

For us, our brokers could be our banks, a third-party app or even a platform

When we invest money through brokers in the stock market,

a broker retains some money as his commission. This is called "brokerage rate"

Banks mostly charge a brokerage rate of around 1%

But 1% is a little high. That's not how much it should be

If you look properly, you would discover platforms

that charge a brokerage rate of around 0.05% or 0.1%

This brokerage rate is a disadvantage for those who want to indulge in a lot of trading of stocks

If a lot of stocks are bought and sold in a day, a lot of money would be siphoned off as a brokerage fee

But if you want to invest for the long term,

then a high brokerage rate wouldn't make a lot of difference because you'd pay it only once

So, investing and trading are two different things

Investing means putting in some amount of money in the stock market and letting it stay there for some time

Trading means quickly putting in money at different places and withdrawing from some places

This all happens in quick succession

In fact trading of shares is a job in itself

There are a lot of people in our country who are traders and do this job all day long

taking out money from one share and putting it in another

taking out from one place, putting it in another, and earning profit in the process

An important question that arises is whether you should invest money in the share markets?

A lot of people compare it with gambling because a lot of risks is involved in it

In my opinion, it is correct to say so because this is indeed some sort of gambling

If you are not aware of the type of the company and its performance,

the parameters of the company and its financial record

if you don't observe its history and accounting information

then, in a way, this is akin to gambling

Because you would have no idea of how the company would perform in the future

You merely listen to people saying that the company is doing well and we should invest in it in the share market,

so that's why you invest in it

You should never do this because it is extremely risky

And, when there are people that do this job day in and day out,

for examples the traders, who are experts in this field and have more knowledge about the stock market

They obviously would outperform the others because they have an idea of how this all works

So, in my opinion, you should never directly invest in the share market

and instead, rely on the experts

A very competent form of it is mutual funds

Because in mutual funds you don't directly decide which companies you would invest in

In mutual funds, you place your trust in experts

and let the experts decide which companies to invest in

In fact a lot of mutual funds invest in many different companies to minimize the chances of loss

For instance.