How Does a Share Market Work?

How To Find Great Undervalued Stocks To Invest InIgnorance is bliss but not anymore if you are planning to tread in an unknown territory of share market. When you know the mechanism of the share market, you can make right decisions and get rid of the fear that hovers around you.

Understanding Shares

Shares are what you buy as part of a company’s assets. Big enterprises need a lot of capital amount to set up the infrastructure for their business to run smoothly. Share is a piece of contract that helps enterprises raise the money and lets traders earn profits as the share price increases with company growth.

Traders can buy and sell shares from the Stock exchanges like NYSE, BSE and more. Traders can also keep a close watch on the world indices live make the buy-sell decision. The company shares can be bought and sold multiple times but this money is spread among traders and does not make its way to the company.

Benefits of buying and selling Shares

IPO or Initial public offering is the channel via which the company’s raise the capital. After that whatever trading happens is because the investors want to earn on their shares as the company evaluation per share grows. The long-term buyers who just want to hold shares of companies that will yield higher benefits invest in blue-chip companies.

Some of the investors like the risk element of the share market and indulge in regular buying and selling. They diversify the investment over short-term and long-term shares and make quick profits. Higher the risk – higher the gain. Understanding the mechanism behind the share price to go up or down is complex and most of the times unpredictable.

Dividend-paying shares

The companies with established base pay a yearly dividend to the shareholders. As the company grows and earns, it decides to share a part of this earning to the shareholders. High dividend paying shares are a regular source of income for few investors as the share price is volatile and can lead to gains or loses.

The share market is an open marketplace where investors regularly buy and sell shares. When the share buying is more, the share price tends to go up and when the selling is more the share prices tend to go down.

Investors use the share market as an altogether different channel as compared to traders. The traders buy and sell shares on the daily basis while the investors hold the shares for a long period of time and try to earn more money and at a time a partnership in the company.

Share market offers flexibility and liquidity to the investors and that is why we witness the rise in the count of share market investors. Once the companies raise capital with IPO, the future share price gives benefits to the shareholders wherein they get the benefits of the regular dividends, share price rise and the voting rights in the company too.  

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