What is the stock market and how does it work? MintGenie explains

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Stocks indicate the units of ownership of a company and stock trading includes the process of buying and selling these units on the stock market to other traders. Stock trading also involves buying and sell other financial instruments such as bonds, derivatives, etc.

How does stock trading work?

There are two national stock exchanges in India, namely BSE and NSE. These stock exchanges provide the platforms where the shares of the companies are listed on the exchange. Any investor who buys shares listed on the stock exchange becomes the owner of this company in proportion to the shares purchased.

To be able to trade stocks, the investor must first open a demat account and a trading account. An investor can hire the services of a stockbroker registered with the market regulator SEBI (Securities and Exchanges Board of India) to open demat and trading accounts.

A trading account is one that is used to buy or sell shares while a demat account stores shares in a dematerialized form. So when a trader uses a trading account to buy the shares, those units are credited to their demat account. Apart from these two accounts, a joint bank account is also required since the money has to be paid electronically at the time of buying shares.

Why are stocks traded?

More importantly, stock trading is considered a proven way to earn money, i.e. a high return on your investment. In addition to high income, the investor also gets a stake in the company and also receives a small portion of the profits from the company as regular income in the form of dividends.

From an organizational perspective, companies need additional capital to run their business for the long term. To raise additional capital, companies invite the public to invest in the company by buying their shares. This is how company shares are traded.

To sum up, it can be said that stock trading can be lucrative but investors need to stay alert, keep abreast of market trends and expect good long-term returns.

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