What is Stocks? What is Stock Market? Lets understand

You've probably heard people talking about stocks and the stock market.

Prices go up. Prices come down!

Someone you know always seems to know someone who made a fortune investing in stocks.

Funny how we hear so much about the profits, but hardly anything about the losses.

Everyone wants a piece of the market.

But do we actually understand what the stock market is? Or what we're buying when we purchase a stock?

Let's start with the basics.

There's a small food business called Anita's Kitchen.

Anita started by selling homemade snacks. Business grew, and soon she had five stores.

Now she wants to open twenty more, but she needs money.

She has two options: take a bank loan and pay interest, or bring in investors who get a share of her business in return.

And that's where the idea of stocks begins.

So, What Exactly Is a Share?

Anita decides to raise money by offering 10,000 shares at ₹100 each.

If all the shares are sold, her company raises ₹10 lakh.

Even if you buy just one share, you own a tiny piece of the business.

That's what a stock or share is, a small piece of ownership in a company.

And as the business grows or struggles, the value of your shares can change too.

Awesome, right?

But now you might be wondering...

So, Where Does the Stock Market Come In?

To raise that ₹10 lakh, Anita offers her company's shares to the public for the first time.

This is called an IPO (Initial Public Offering).

You apply for 10 shares. If you're allotted all 10, you pay ₹1,000. That money goes to Anita's company, and you become a tiny part-owner!

Free samosas for life? Unfortunately, no. 😂

Once the IPO is over, Anita's shares can be listed on a stock exchange, such as:

• NSE: National Stock Exchange
• BSE: Bombay Stock Exchange

Now you can sell your shares to someone else. And here's the interesting part:

The buyer pays you, not Anita. Her company already raised its money through the IPO.

That's how trading in the stock market works. Investors buy and sell shares of companies.

But Who Decides the Share Price?

Ever been to a sabzi mandi?

When tomatoes are in short supply and everyone wants them, prices go up. When there's plenty of stock but fewer buyers, prices fall.

That's simply demand and supply.

The stock market works in a similar way.

Remember, Anita's Kitchen started at ₹100 per share.

Now her business is doing well. Profits are growing, and more people want to buy her shares.

But existing shareholders aren't willing to sell at ₹100 anymore. Buyers offer ₹110, ₹120, maybe even ₹150.

As demand increases, the share price can rise.

But if Anita's business starts making losses, more people might want to sell. With fewer buyers willing to pay the old price, the share price could fall to ₹90.

And that's how prices move. And that's how you earn profits or take losses.

Just like tomatoes, share prices depend on demand and supply. The difference is that demand for shares is influenced by company performance, news, and what investors expect to happen next.

But you might have another question.

"If I'm a part-owner of the company, don't I get a share of its profits?"

Well, you might!

What If Anita Shares Her Profits With You?

Let's say Anita's Kitchen had a great year and made a good profit.

The company decides to share some of that profit with its shareholders. This payment is called a dividend.

If Anita's Kitchen declares a dividend of ₹5 per share and you own 10 shares, you receive ₹50.

And you still own your 10 shares!

But remember, dividends aren't guaranteed. Companies can choose to reinvest their profits into growing the business instead.

So, That's the Stock Market!

You now know what a share is, how a company raises money through an IPO, why share prices change, and how investors can make or lose money.

But knowing how the stock market works and knowing how to invest are two different things.

In the next article, we'll continue building up on basics of stock market.\ \ For now, remember one thing:

When you buy a stock, you're buying a small piece of a real business, not just a number moving on a screen.

This article is for education only and is not personalised investment advice. Returns shown are illustrations, not forecasts. Rules and rates change, so check the latest information and consider a SEBI-registered adviser for decisions about your own money.