The share market, also known as the stock market or equity market, is a platform where individuals and organizations can buy and sell shares of publicly listed companies. The share market is a crucial component of the global financial system, as it enables companies to raise capital by selling ownership stakes in their businesses to investors. In this article, we will explore how the share market works, and the different types of shares and trading methods involved.
What is a share?
A share represents a unit of ownership in a company. When a company issues shares, it is effectively dividing the ownership of the business into smaller portions. For example, if a company has issued 100 shares, and an individual owns 10 of them, then they own 10% of the company. The value of a share is determined by the company's performance, the demand for the share, and other market forces.
Types of shares
Companies can issue different types of shares, each with its own unique characteristics. The most common types of shares are:
1. Ordinary shares: These are the most common type of shares, and they give the shareholder voting rights at company meetings. Ordinary shares also entitle the shareholder to a portion of the company's profits through dividends.
2. Preference shares: These shares do not give the shareholder voting rights, but they do provide a fixed dividend payment. Preference shares are often seen as a safer investment option, as they offer a guaranteed return.
Also Read: What is Demat Account & How it's Works?
How does the share market work?
The share market is made up of buyers and sellers who come together to trade shares. Buyers are typically investors who believe that a company's share price will increase in the future, while sellers are often looking to cash in on their investments.
Shares are bought and sold on stock exchanges, which are regulated marketplaces that provide a platform for buyers and sellers to come together. The most well-known stock exchanges include the New York Stock Exchange (NYSE), the London Stock Exchange (LSE), and the Tokyo Stock Exchange (TSE).
To buy and sell shares on a stock exchange, investors need to place an order with a broker, who acts as an intermediary between the investor and the stock exchange. There are two main types of orders that investors can place:
1. Market order: This is an order to buy or sell shares at the current market price. Market orders are executed immediately, but the price at which the shares are bought or sold may not be the same as the price quoted at the time the order was placed.
2. Limit order: This is an order to buy or sell shares at a specific price or better. Limit orders are executed only when the share price reaches the specified price, or better.
Once an order has been executed, the shares are transferred from the seller to the buyer, and the transaction is recorded by the stock exchange. The share price is determined by the forces of supply and demand, with prices rising when there are more buyers than sellers, and falling when there are more sellers than buyers.
Conclusion
The share market is a complex and dynamic system that plays a critical role in the global economy. By providing companies with a way to raise capital and investors with a platform to invest in the future of businesses, the share market fuels innovation and economic growth. Understanding how the share market works is essential for anyone looking to invest in shares, and it is important to do your research and seek professional advice before making any investment decisions.
0 Comments