What really is the stock market?

What really is the stock market?

What is Stock Markets?

Investing in shares is important for many reasons (Click here to know why?) and also to generate inflation-beating results. So, now it comes down to how should we invest in stocks. So, just like you go to a near supermarket or a Kirana store buy things for our daily needs similarly, we go to a stock market to buy/sell shares. For practical purpose, we can't buy or sell shares of any publicly listed company (those companies who are listed in the stock exchange) without transacting through the stock market.

The main purpose of the stock market is to help you facilitate your transactions. So, if you are a buyer the stock market helps you meet the seller and vice verse. But, unlike the supermarket, the stock market is not made of bricks. It exists online, You can access the stock market using your computer or mobile devices and do all your transactions.

Also important, you can only access the stock market via a SEBI registered Stockbroker like Zerodha, Upstocks, etc. To buy and sell your shares.

Now, let us know what happens after you bought a stock. 

So, let's say you bought 200 shares of a listed company. Now the shares will come to your Demate account (it's like a bank account where you keep all your shares.) and now you are a part-owner of the company. 

Now comes the holding period. It is the time period when you keep your stocks in the Demate account till the time you sell those 200 shares of the company. The holding period may be as short as a few minutes to as long as 'forever'.

Each market participant has their own way or style of trading and earns profit from the market. Their style is also defined by the type of risk they want to take. There are mainly two types of people, a trader and an investor.

Trader:

A trader is a person who spots an opportunity and initiates the trade with and expectation of profit from the trade at the earliest given opportunity. A trader has a short-term view in the market.

There are different types of trader in the market :

1. Day trader- A day trader is a person who buys and sell the shares within a day.

For example. He would buy 100 shares of Infosys at Rs.905 at 9:15 AM and sell them at 3:20 PM at Rs.915 making a profit of Rs 1000 in this trade. A day trader usually trades 5 to 6 stocks per day.

2. Scalper- A type of day trader who usually trades very large quantities of shares and holds them for a very short span of time with an intention to make a small but quick profit. 

For example, He would buy 10,000 shares of Infosys at Rs.905 at 9:19 AM and sell them at 9:21 AM at Rs.905.1 makes a profit of Rs 1000 in this trade. A scalpel usually trades many stocks of such type, but a scalp trader is highly risk-averse.

3. Swing trader-  A swing trader is a type of trader who buys and holds shares for a slightly longer time duration, it may be a few days to few weeks.  He is typically more open to taking risks.

For example, He buys 100 shares of Infosys on 20th July and sells them on 24th July.

Investor :

An Investor Is a person who buys a stock and holds them for long-term expecting a huge appreciation in the value of the stock. A typical holding period of an investor usually runs for a few years. 

1. Value investors- The main objective of every value investor is to find good companies irrespective of whether they are in a growing phase or mature phase but the stock price should be in the bottom phase so that it becomes a great value buy. 

For example: Let us take Infosys. The stock price is trading at Rs.900 but there was an issue with the company, and it created a negative sentiment in the market due to which the price falls down to its the lowest level to rs. 500. It creates an opportunity to buy the stock for value investors because the fundamentals of the company were good and the issue was short term and in the long run the price will definitely rise.

2. Growth investors - The main objective of growth in vectors is to identify companies which are expected to grow significantly. 

An example was buying Hindustan Unilever, Infosys, Gillette India back in the 1990s. These companies witnessed huge growth because of the change in the industry landscape thereby creating massive wealth for its shareholders.

So, these were some of the people who trade in the stock market but we should always remember never invest in stocks without the knowledge, it can create massive wealth as well as can take it all from you. Invest wisely.

~ By Suddha.