Introduction

“An important key to investing is to remember that stocks are not lottery tickets” – Peter Lynch.

Recently, everyone around has been talking about the share market, whether millennials or generation Z.  Over the last decade, there has been an alteration in the traditional systems of holding physical shares. Earlier, there were only a handful of online traders. Now the number has dramatically risen. 

Globally, the Indian share market is the seventh-largest. The market cap of the National Stock Exchange (NSE) was US$ 3.1 trillion as of May 2021. and the total market capitalization of the Bombay Stock Exchange (BSE) increase to $2.7 trillion in Feb 2021.

Share Market Basics

To start investing in the share market online, an investor needs to open Demat account online first.

An investor can open a Demat account online through brokers by filing the Demat account application.

To understand the share market basics. it is essential to start with its regulatory authority Securities and Exchange Board of India (SEBI).

SEBI 

In India, the regulatory authority regulates the stock market. and protects the interest of the investors is the Securities Exchange Board of India (SEBI).

The main focus of SEBI is to do risk management by addressing the market risks. They also focus on operational risks, systemic risks and enforcing the measures and reforms. 

What are stock exchanges?

A stock exchange is a platform where an investor can perform trading activities. They can buy and sell stocks and other securities. 

The Bombay Stock Exchange(BSE) and the National Stock Exchange(NSE) are India’s two major stock exchanges.

Stock exchanges act as a counterparty for every trade done in the share market.

Stock exchanges, through clearing corporations, guarantee the trades. Thus, it’s completely safe when an investor deals in stock markets.

Learning online basics in stock trading 

To start investing in the share market online, an investor needs to open a Demat account and a trading account.

Earlier, when people used to buy shares of a company. they would get a physical share certificate from the exchange with their name on it. 

However, after introducing the Demat account in 1996, everything can be done at your fingertips.

Now, as everything is done on a digital platform, an investor is not required to visit the exchanges to do the transaction. They can perform any transaction sitting at their home.

This has increased the outflow of money in the share market. Even during the pandemic, people were investing more of their money in the share market because of the ease in doing trading.

Demat account refers to an online repository provided by a stockbroker or depository participant registered with SEBI and central depositories. 

Investors need to open Demat account online to store their shares and other securities, like debentures, Government securities, currencies, bonds, and mutual funds electronically. 

A trading account facilitates investors with an online trading platform to place trade orders online without visiting a stockbroker or stock exchange. 

Types of share markets 

• Primary market:  

The primary market, also known as the IPO market, is where privately held companies offer their shares to go public for subscription and raise capital. Through IPO, private companies get listed on the stock market.  

• Secondary market:  

Once the shares are issued to the public and listed on the exchange, they are traded in the secondary market. In simple words, an investor can buy and sell shares in the secondary market. 

Why do investors invest in the share market online?

Investors prefer to invest in the share market because of two things:

• Returns: 

Investors can earn good returns in the share market. They can invest in shares that can appreciate in the long run. Let’s say an investor has invested Rs. 60,000 in the year 2004 that has become worth Rs. 7 lakhs today. Such significant returns result from an investor’s informed decisions and the company’s efficient management. 

When investors buy shares online, they are held in their Demat account, and the necessary amount is debited from their bank accounts. When investors sell shares, the shares are debited from the Demat account, and the amount is credited to the bank account. 

• Dividend Income:  

Investors can also earn regular dividends by investing in the stock market. Dividend distribution is solely the decision of the company. 

A dividend is the net profit of the company distributed among shareholders in proportion to shares they hold in the company. 

The dividend income earned by the investors is credited to their linked bank accounts. 

How does the online stock market work?

Stockbrokers are the party that link the buyers and sellers. 

Stockbrokers have to register with SEBI and become members of a recognised stock exchange. 

Whenever a buyer or a seller places their trade orders on the stock exchange, stockbrokers forward these trades to the stock exchange to execute the order. 

Clearing corporations are the institutions that handle the trading transactions to ensure quick delivery of shares, credit and debit of money.

This is how the stock market works. 

Conclusion

Understanding the stock market is not a big task. Investors can start investing in the share market with just a small amount of money.

The most important task is to select the right broker, compare the brokerage charged by different brokers, the facilities they provide, how they are different from other brokers, etc.

Various stocks are available for an investor to invest in. So, it is crucial to select the right stock and decide the necessary amount of money you need to invest to reach your goal.

Understanding the importance of diversifying your portfolio to minimize the risk is also crucial. 

Also read:- What Are The Formalities To Open A Demat Account Online?