Stock Market Basics: Study Notes for Beginners
Introduction to Stock Market
The stock market is a place where buyers and sellers trade shares of companies. A share
represents partial ownership in a company. If you own shares, you own a part of that business.
Why Companies Issue Shares?
Companies need money to grow, expand operations, or launch new projects. Instead of taking
loans, they can issue shares to the public. Investors buy these shares, giving the company funds.
Primary vs Secondary Market
Primary Market: Where companies sell shares to the public for the first time through an Initial Public
Offering (IPO). Secondary Market: After IPO, shares are traded among investors on stock
exchanges like NSE or BSE.
Stock Exchanges
A stock exchange is a platform where shares are listed and traded. Examples include: - New York
Stock Exchange (NYSE) - NASDAQ - National Stock Exchange (NSE, India) - Bombay Stock
Exchange (BSE, India)
How Trading Works
1. You open a Demat and Trading account with a broker. 2. You place a buy/sell order for a stock.
3. The order is matched on the stock exchange. 4. Shares are credited/debited from your Demat
account.
Types of Investors
- Retail Investors: Normal individuals investing their savings. - Institutional Investors: Banks, mutual
funds, pension funds. - Foreign Institutional Investors (FII): Large global investors.
Types of Shares
- Common Shares: Most widely traded, with voting rights. - Preferred Shares: Fixed dividends but
usually no voting rights.
Stock Market Indices
An index represents the performance of a group of stocks. Examples: - Sensex (BSE): Top 30
companies in India. - Nifty 50 (NSE): Top 50 companies in India. - Dow Jones Industrial Average
(US): 30 major US companies.
Risks in Stock Market
1. Market Risk – Prices may fall suddenly. 2. Company Risk – A company's bad performance
affects its stock. 3. Liquidity Risk – Difficulty in selling shares quickly. 4. Regulatory Risk – Changes
in government policies.
Long-term vs Short-term Investment
Long-term: Holding shares for years, benefiting from growth and compounding. Short-term: Quick
buying and selling for profits (trading).
Basic Investment Strategies
- Buy and Hold: Invest and stay invested for long-term. - Value Investing: Buy undervalued stocks. -
Growth Investing: Focus on companies with high future potential. - Dividend Investing: Pick
companies giving regular dividends.
Mutual Funds and ETFs
Mutual Funds: Pool of money collected from investors to buy diversified stocks. ETFs (Exchange
Traded Funds): Similar to mutual funds but traded like stocks.
Role of SEBI
In India, the Securities and Exchange Board of India (SEBI) regulates the stock market to ensure
fair practices and protect investors.
Conclusion
The stock market is a powerful way to grow wealth but also carries risks. Learning the basics,
understanding risks, and following disciplined investment strategies are key to long-term success.
