The Stock Exchange: An Introduction
- by Simran Rohra
The Stock Exchange is a market in which securities are traded. A security is an entity committed as a guarantee of the fulfilment of a contract. This shall cause a penalty in case of the default. We can also call them shares. These are shares of various companies that saw it fit to go public. A company usually goes public when its wants to raise money. By going public, shares of the company are put up on the stock market. Interested buyers are free to purchase these shares. This being said, stocks may not always be sold by the company directly to a buyer. The Stock Exchange is a complex and orderly market where investors can sell to one another through brokers.
The Stock Exchange is an opportunity to earn great profits, but this is quite dependent on how well versed one is with the market as well as its ups and downs. How does it work? How does one earn money through this?
The shares of a company are traded at certain rates. The rates vary based on how large or small the company is (larger the company and its success, higher the value of an individual share). The appearance of the company plays a big role. For example, let us take company ABC. Let’s say that company ABC has a strong foundation, has been around for a long time, earned a great reputation and has had a constant rate of growth. The investor who owns shares of ABC, bought at a rate of Rs. 5 per share, receives a dividend on their shares. But unfortunately, rumours start spreading about ABC-saying it’s a scam, its products are facing patent issues, etc. These rumours may be utterly false, yet, it affects the company and its shares. This causes the company to fair badly and now, it’s price per share has dropped to Rs.3. The investor suffers a loss.
Let us now take company XYZ. It’s a relatively new company and doesn’t have great sales. The company decides to go public so as to raise capital and flourish. An investor sees a potential success in the company and purchases shares at Rs.1 per share. The company begins to do well and news about it spreads through all of social media. The company may become extremely popular overnight and the price per share shoots up to Rs. 10 per share. The investor can continue holding on to his shares, it is up to their will. If they decide to sell their shares, they receive a profit.
These changes and developments are extremely random and may not always be the truth. They can be predicted to an extent due to experience and familiarity with the field.
One might compare The Stock Exchange to gambling but it is not so. It is an organized market and it requires recognition from the central government. A set of rules and regulations are enforced which need to be abided by.