<!– /11440465/Dna_Article_Middle_300x250_BTF –>If you’ve ever visited the local vegetable market with your mother, you would have probably noticed how she makes her pit stop at a few selected vendors. Try arguing with her to try some new vendor, and be sure that she’s going to convince you about how her favourite vendors sell the best veggies and that too at a good price. This is similarly how the stock market works; only it is much bigger with a lot more money and it is companies instead of vendors selling their products.Share marketUnlike the vegetable market where you buy vegetables which is a commodity or a product, in the stock market you buy a part of the ownership of the company through stocks. What this essentially means is, through a stock you can buy a piece of the company. This piece of company can be bought through shares. If you buy shares of a company, then it means you are entitled to the assets and earnings of the company. Assets include equipment, trademark etc. On the other hand earnings is the income earned by the company through selling of the products and services. If the company earns profits, then the shareholder also earns dividend (a small part of the profits).Indian stock marketThe biggest stock markets in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). BSE has over 5500 listed companies with market capital of over Rs 104 lakh crore. NSE has over 1600 listed companies with market capital of Rs 97 lakh crore. The stock markets are regulated by the Securities and exchange Board of India (SEBI), which takes care of investor interests making sure the market is regulated with no fraudulent practice.Why does a company issue shares?When a company is in need of money to expand its business or cover costs, it has two options. It can either borrow money through debt financing or issue shares through equity financing. Issuing shares might be a better option as it is less risky and the question of interest to the paid does not arise. The company issues shares through ‘Initial Public Offering’ (the first time the shares of the company are offered to the public). The price of the share is determined by the value of the company and the number of shares issued. These shares continue to be bought and sold by the people.How are shares bought and sold?The buyer (investor) buys and sells shares through stockbrokers or stock brokerage firms who act as an intermediary between the investor and the stock market. The intermediary tries to find a match for the buyer and seller of the share for the transaction to go through. This is all done through electronic medium, which is why finding buyer and seller for the stock takes place in minutes. The prices of the stocks depend upon the demand and supply of the shares. This in turn depends upon the performance of the company and what analysts say about the company as well the market conditions.Investors vs tradersInvestors and traders are the two main players of the stock market. Investors are interested in building their pool of wealth by investing in a number of stocks and other financial instruments over a long period of time.Traders buy and sell shares over a short period of time with frequent transactions. Traders make profits or at times losses within a specified time. They set loss limits for the specified period and if the stock goes below it, they would sell it in spite of the loss. While an investor might want to make 10% profits annually, a trader might hold the same goal for a much shorter period.

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A beginner’s guide to stocks, shares and trading