Basics of the Stock Market - Part 1

During the ongoing Covid-19 pandemic that is raging the entire world, more people are looking at ways to multiply their money. In this post and the upcoming one, I will be covering the basics of one of the best ways to multiply your money, the STOCK MARKET.

What is Investing? 

Investing means putting your money into any financial scheme with the hope of achieving a profit. Depending on the medium, profits gained from investments may take from 2 days to 20 years! However, it should also be noted that there is an even possibility for an investor to incur losses. 

5 Types of Investments

There are 5 main types of investments which are 1. Stock Market.  2. Gold.  3. Real Estate.  4. Bonds.  5. Mutual Funds

I will be explaining all the other types of investments in another blog. However, I will be going over the difference between the Stock Market and Mutual Funds. 

Stock Market VS Mutual Funds

In the Stock Market, the investor is in charge of his investments. The investor takes all the decisions based own his own knowledge. However, if the person prefers to have an expert handle his investments and let him take the decisions, then investing in mutual funds is the best option for those people. A Mutual Fund is a company which pools money from various investors and the experts in that company use that money to buy stocks/bonds on your behalf. Although investing through mutual funds is a low risk option, it also gives low returns and hence, it may not be the best option for you to multiply your money.

What is the Stock Market?

If we break down the words "Stock" and "Market", a "Stock" refers to a part of a company and "Market" means a place where you buy and sell things. Thereby, a Stock Market is a place where investors buy and sell small parts of companies. 

How to make money through the Stock Market

There are two ways to make money from the stock market. 

1. If you buy a stock for ¥2000 and you sell it after 5 months for ¥5000, then you get a net profit of ¥3000. 

2. If you hold a certain stock for more than 3 months, then based on the company's performance in that financial quarter, they will pay you a part of their profits in proportion to the number of shares you hold.

These are the two ways by which you can multiply your money through the stock market.

Now, I will be explaining 3 very important terms related to the Stock Market.

Stock - Stocks, also known as shares, are units of a company. If an investor buys stocks of a certain company, then that investor becomes a part owner of that company! The investor is also eligible to attend the company's annual shareholder meeting where the company lays out their plans for the future.

Stock Exchange - This is the place where investors TRADE(buy and sell) stocks. Each country has their own stock exchange where the largest companies of that country are listed on the exchange. 30 - 40 years ago, in order to invest in the stock market, a person had to go all the way to the stock exchange to carry it out. Obviously, this had so many cons to it. However, we can now buy and sell shares through the internet which is very convenient and easy for investors. Prominent stock exchanges include the Dow Jones Industrial Average, NASDAQ, NSE and Nikkei 225 to name a few. 

Broker - A Broker also known as a member of the Stock Market is the person/organisation who directly deals with the stock market. Even though it is the investor who decides which stock to invest in, the broker is the one who executes the order. Hence, the investor has to pay a small fee to the broker called a brokerage.

I hope that you have acquired some basic knowledge about the stock market. In the next blog, I will be diving deeper into this topic and will definitely share more of my learnings😀