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How does Stock Market Work? How to Invest in Stock Market? How to Make Money with Stock market?

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Understanding the Working of Stock Market

A stock market is provides the mechanism for the trade of financial instruments such as equities and commodities. The Securities and Exchange Board of India regulates the operations on this platform. To conduct trading, participants must register with SEBI and the stock exchange. Brokering, the issuance of stocks by firms, and other trade operations are examples of exchanges.

Understanding the Working of Stock Market

At first a company offers their equity shares through an Initial Public Offering. These shares are allotted prior to listing, and traders who buy the shares receive their portion depending on the number of investors or the volume of the public offer and eventual bids. Shareholders can sell shares on the stock exchange once the firm has been listed. This is the marketplace where buyers and sellers may trade and generate earnings or, incur loses.

Since the volume of investors or market players in the stock exchange may be too much to accommodate in one place. Stock Brokers and Broking firms facilitate the execution of trade. The broker and broking firms are intermediaries between customers and the market directly. 

The broker further sends the purchase request for the stock to the exchange where it is matched with a sell order for the identical instrument. The transaction occurs whenever the vendor and customer agree on a price and finalise it; the transaction is then verified. The market validates the transaction to guarantee there were no flaws in the trade. Hence, the sale or transfer of the shares, which is known as Settlement is finalized. The shares are credited to the related Demat account within 2 working days.

Investing in Stock Market

Investing in stock market requires the investors to fulfil certain requisites. These requirements includes

  1. Necessary documents such as PAN Card, Aadhar Card, a Cancelled Cheque, Address Proof, Bank Account Statement, Passport size photos
  2. For stock market the investor need to have a Demat account, which serves as a repository vault wherein all stocks and securities are delivered to.
  3. Along with a Demat Account, a Trading Account is required, which usually accompanies the Demat account opening. This trading account is directly linked with the bank account and facilitates easy money flow for a smooth trading.

The share market may be further bifurcated to Primary and Secondary, where primary share market holds trade of Initial Public Offerings. This IPO shares are requested for well in advance and are eventually allotted to the investors based on the volume of stock and its availability. The secondary market further facilitates the buying and selling of the listed companies stock. 

The investor may directly invest in shares in an easy way by logging in to their trading account, selecting the stock and buying or selling the stocks at a desired price. The only requirement here is to have requisite amount of funds in the trading account.

Making Money in Stock Market

Stock market for long time in India was considered more like gambling however, the mentality of the general population has changed and it has been established that it works on principles and methodology. 

Making a steady earning through stock market may not be as difficult as it seems, if you follow certain ideologies.

  • Determine the kind of trading habit that would suit your investment. If you have a decent risk tolerance or a relatively safer investment outlook matters a lot in finding out your plan of action.
  • Avoiding herd mentality, i.e. not getting influenced by the market trends of buying or selling particular stock. This may exhaust the interest on the stock and result in losses.
  • Having a discipline about the investments in stock market will eventually get you decent results. The stock market is volatile in nature and hence do not give in to temptations.
  • Emotions have no place in stock market trading and hence you are better off without it.
  • Do not invest from your savings or a part of your income which you may need at some point. Always use your surplus fund.
  • Have a realistic and patient approach in your trading habits has always given decent returns.
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