Free Basic knowledge of Share market in English
Share market , is place where shares/stocks of companies (SEBI regd) are bought and sold. The stock market is a share market, however besides shares of companies, other instruments like bonds, mutual funds and derivative contracts too are traded in the share market . Below is free basic knowledge of share market.
The stock market can be split into two main sections:
Primary share market (IPO)
In a primary market, companies, can raise money by issuing shares to the public through an initial public offering (IPO). Companies generally get listed on the stock exchange through the primary market route. Company is selling shares for the first time, so it is called an Initial Public Offering or IPO, after which the company becomes public. In this market investor buy shares directly from company.
How it work?
An Investor buys shares from Company by applying through an IPO. After receiving the applications company verify applications and allot shares to the eligible investors. All the eligible investors gets shares in their DEMATE account. After receiving share in their DEMATE account they can sell shares to other SEBI registered investors.
Socianaka company wants to raise Rs.1 lakh capital for their company , so they have completed all the formalities with SEBI and now they are ready with their IPO
(Rs.10 face value (actual cost) x 10000 share = Rs.100000) .
The company will issue 10000 shares to public. While selling shares company put shares in lots (eg. 50 shares, 75 shares, 100 shares) and ask investors to bid between the specific value decided by company . For example, if company’s valuation comes per share between Rs100-150 and they decide to sell in 50 shares lot then the IPO subscription price for people will be 50 shares 1 lot = (50 x bidding price range Rs.100 to Rs150. ) Mostly people bid at higher price , so for purchasing one lot of this IPO customer has to pay (Rs.150 x 50 = Rs.7500)
If company receives applications for below 200 lots then it is called under subscribe. And if company receive more than 200 lots then it is called over subscribe .
Underwriter will bear that unsold shares /lots, if IPO is under subscribed.
If IPO gets Over Subscribed then all the applicant may not get allotment of shares.
That means if Mr.Santosh wants to buy shares of Socialnaka then he has to apply for 50 shares (1 lot) at price between (Rs.100 -Rs.150). Normally highest bidders gets a preference in allotment of shares. If IPO gets Under subscribed then he will surely get allotment of shares and shared will be credited to his Demate account, otherwise if IPO oversubscribed then he might get allotment or he might not get allotment. If he does not get allotment then he will get refund of his investment from the company.
Secondary share market (Sensex, Nifty, F&O)
In the secondary market, investors trade in shares of already listed Company by buying and selling them. In secondary market one Investors buys shares from other Investors who want sell that shares. Normally, these transactions are conducted through a broker. Secondary market offers investors a chance to sell all its shares and exit the financial market.
The share market is a source for companies to raise funds and for investors to buy part-ownership in growing businesses and grow their wealth.. Traders ,Brokers (Market participants) need to get registered with the stock exchange and market regulator SEBI to be able to trade in the stock market.
How it work?
In this market trading is done between two investors. One person wants to sell his shares available in his DEMATE account and the other person want to buy that shares. So there should be a Buyer and a Seller must be there for trading of that particular company’s shares. Seller put sale order his shares for selling at the current market rate (CMP) or he can sell at higher rate than CMP at target price (Limit price). Buyers can put Buy order at CMP or he can put limit price lesser than the CMP( Limit price) .
Mr Santosh wants to sell 50 shares of Socialnaka. Today’s cmp of Socialnaka is Rs.300 per shares in the market. So Santosh will either give sell order at “current market price” at Rs.300, or if he assume that this share probably go further up then he might put his sell order at “limit order” price at Rs.305.
If he select “market price” option then his share will be sell at the current market price. And if he select “limit order” option then he has to wait till the share price reach to limit order price updated by him.
At other place Mr.Ram wants to buy 50 shares of Socialnaka. He has studied this stock. And as per his analysis this stock might go up to 400 in a month. Hence he want to buy this stock now. So he will order share either at current market price (CMP). Or he might put his bid for Rs.298 as limit price.
If demand for the share go up as day progress then Santosh might get his desired price as Ram might change his mind and buy at Rs. 305.
If demand for the share go down as day progress then Ram might get his share at his desired price as Santosh might change his mind and sell at Rs.198.
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