What is Stock Market?

For most of the people or to the new investors, the stock market may feel like a gambling place. They think that people who are incline towards gambling bet there money on random stocks in stock market and some wins and some lose based upon their luck.

But my friends in reality stock market in not a legalized betting place, the more you will read and learn about it you will come to know about its functionality and how important for any investor to invest some part of their hard earned money into stock market.

In a very simple form we can say that in stock market people buy and sell shares. The reason behind buying and selling shares of any company is depends upon various factors about which I will explain in another post.

Moving further in a very basics structure when we buy shares of any company it means we are buying little share in the ownership of that company, after buying shares you are entitled for small fraction of assets and earnings of that company. Everything that company owns like (buildings, equipments, trademarks, patents etc) will come under Assets and all the money that company in bringing in by selling its services, products etc will come under Earnings.

I am sure at this time one question must be ringing bells in your mind that why would any company want to sell its Shares. The reason behind selling shares is to generate money for expansion or to cover start up cost, and by keeping legal aspect of business in mind a company can generate money by two ways either by taking loans from banks (which is called Debt Financing) or via selling shares (which is called Equity Financing). 

In case of debt financing the disadvantage is that company needs to return loan amount back to the lending bank along with certain amount of interest rate. But in case of equity financing there are less legal obligations and company do not need to pay any interest and also no need to return money at all. The best part of equity financing for any company is that it help them to distribute the risk of doing business with large pool of people who have bought shares of that company.

So guy’s in order to explain basic principal behind stock market and why people buy and sell shares of any company I will use a hypothetical example of small Tea Stall business in future posts.

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