What is Stock Market?
The stock market can be intimidating, but a little information can help ease your fears. Let’s start with some basic definitions. A share of stock is literally a share in the ownership of a company. When you buy a share of stock, you’re entitled to a small fraction of the assets and earnings of that company. Assets include everything the company owns (buildings, equipment, trademarks), and earnings are all of the money the company brings in from selling its products and services.
Why companies get listed?
Why would a company want to share its assets and earnings with the general public? Because it needs the money, of course. Companies only have two ways to raise money to cover start-up costs or expand the business: It can either borrow money (a process known as debt financing) or sell stock (also known as equity financing).
The disadvantage of borrowing money is that the company has to pay back the loan with interest. By selling stock, however, the company gets money with fewer strings attached. There is no interest to pay and no requirement to even pay the money back at all. Even better, equity financing distributes the risk of doing business among a large pool of investors (stockholders). If the company fails, the founders don’t lose all of their money; they lose several thousand smaller chunks of other people’s money.
How does it work?
Stocks in publicly traded companies are bought and sold at a stock market (also known as a stock exchange). The National Stock exchange (NSE) is an example of such a market. Modern stock exchanges make buying and selling easy. You don’t have to actually travel to Mumbai to visit the NSE or BSE. You can call a stock broker who does business with the NSE, or you can buy and sell stocks online for a small fee.
There are two big stock exchanges in the India:
NSE – National Stock exchange
BSE – Bombay Stock exchange
Who is shareholder?
Shareholders are the people who own shares of stock in a company. Collectively, the shareholders are the owners of the company, since each share of stock entitles the owner to a say in how the corporation is run. Shareholders elect a board of directors to make the company’s major decisions, such as the number of shares to be issued to the public.
Do all Companies get listed?
Interestingly, not all corporations decide to have public shareholders. Corporations can choose to be privately or publicly held. In a privately held company, the shares of stock are all owned by a small group of people who know one another. They buy and sell their shares amongst themselves. A publicly held company is owned by thousands of people who trade their shares on a public stock exchange.