Firstly, what is the stock market?
Stock market means the collection of Markets and exchanges, where regular activities of selling, buying, and issuing stocks of publicly held companies take place. These financial activities are conducted through institutionalizing formal exchanges or over-the-counter marketplaces. They operate under a defined set of rules and regulations. There are multiple sets of stock trading venues in a country or region that allow transaction in stocks and other forms of securities.
Stock market and exchange
While both stock market and stock exchange are interchangeable latter terms, in general, a subset of the former. If one said that he or she trades in the stock market it means that they buy and sell shares or equities on one or more of the exchanges in the nation. These leading National exchanges along with several other exchanges operating in the country form the stock market of the country. Though it is primarily known for trading stocks and equities, there are other financial securities, like an exchange-traded fund, corporate bonds, and derivatives based on stocks, commodities, currencies, and bonds.
Understanding how the stock market works
While today it is possible to buy almost everything online, this is usually a designated market for every commodity. For example, people drive to city outskirts and farmland to purchase Christmas trees, they visit local Timber Markets to buy wood and other necessary material for the home, and they go to Big stores and supermarkets for the regular grocery supplies too. Since the number of participants in this work is quite huge, the prices are short to be fair. The stock market is a similar setting, it is designated for trading various kinds of securities in controlled and secure environments. It brings together hundreds of market participants who wish to buy and sell shares and then shows fair pricing practices and transparency in transactions. Earlier, the stock market was used to issue paper-based physical share certificates, but the modern-day computer-aid in the stock market operates electronically.
As an investor, you will profit through the stock market. There are various ways through which benefits will knock on your door. They are:
The most important factor of investing directly in the market is the potential of the market to deliver the kind of gains it does. Historical data suggest that the stock market has always passed the test of time, they are the ones that rise in value over some time even though individual stock prices can fluctuate on a daily basis. Investment in companies has showcased a table graph of growth that tends to Clock higher profits every quarter. Investing in sectors that add to the economic growth of the country will steadily result in building your wealth or increasing the value of your investment over a while.
2. Effortless Trading Boons
Buying and selling stocks is no longer a complex mechanism with today’s market, and stock is only a click away with websites and applications supporting investors and traders. It is possible for you to regularly monitor your investment in the stock market and trade along with your full-time jobs as it’s no longer a long and tedious process. I am not going to say this would add money to your capital, but it will surely not result in losses. You can do it from wherever you are and whenever you want to. It is not subtracted from your savings and keeps you financially stable.
3. A Guard Against Inflation
It can be termed as a profit when put sideways to inflation. When inflation hits, you might not always know what’s going to keep you financially stable, but the stock market can profit you when it comes to this. The primary purpose of an investment is to secure the future, but we need to check in upon inflation from time to time. If the inflation rate of return on investment is similar, then again, it becomes nil. The rate of return and investment should be higher than that of inclination to stop the stock market as Nifty 50 and Sensex have always stayed ahead of inflation.
Stocks are always termed as liquid assets, that is when they can be easily converted to cash which has many buyers at any given point at any time. But the same is not the case for all the assets, for instance, it is difficult to find a buyer for a property. It could take months or even years to cash in on the investment made on a property. However, in the case of stocks, it is way easier. The average daily volume of transactions on NSE and BSE is high, which means there are multiple buyers and sellers for just one stock.
5. A Booming Economic Profit
The stock market is always a factor in the booming economy. It reacts to all the economic growth indicators, like GDP, inflation, corporate earnings, and much more. The stock market investor is the one who can take direct advantage of a booming economy and the value of the investment that grows in proportion to their economic growth. This factor, in turn, affects the consumer’s demand which leads to an uptick in sales. So the value of your investment in the company increases, that is, the share price increases.
6. Transparency Benefits
Transparency in any form of investment or treatment only adds to your profit. The Indian stock market is regulated by the stock exchange board of India and it is responsible for regulating the stock exchanges. The development and protection of the rights of the investors have led to several investors investing in the stock market. It means when an investor invests in financial products on the stock market, they are well protected by the regulatory framework laid down by SEBI. It helps in reducing the risks of fraudulent activities by the company.
7. Small and Flexible Investments with Good Returns
As a newbie to the market, you might want to start small. These stocks do not demand a lump sum investment amount like other major investments. Another feature of directly investing in stocks, you can buy at your discretion, and there is no compulsion of investing in a particular sum of money every month or a year.
8. Dividends Come your Way
You get income that is paid annually by most companies, and it is termed as a dividend. Dividend payments arrive even if the stock has lost value and represent income on top of any profit that comes from eventually selling the stock. Dividend income can help you fund retirement or for even more investment as you grow your investment portfolio over time.
The stock market does not always mean profit, and before stepping into it, you got to clear your head of that. You would actively lookout for investing in the stock market to diversify your financial portfolio, and with that portfolio, you can stay ahead of inflation. And apart from this factor, you will have the freedom to choose which companies to invest in. It will also serve as a much-needed liquidity cushion so you can rely on it. It does involve a certain amount of risk, but it also involves a large amount of profit when you have the right strategy of investment and trade.