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Fundamentals of Stock Market

Stocks refer to company securities or corporate equities traded on a stock exchange regulated by a government body and managed by investors, stake holders, operators and financial advisors.

When you purchase stocks in share market for a corporation, you instantly become an investor or a shareholder depending on the short-term or long-term investment commitment by you.

When you buy to become owner of a share of stock, you are entering into minor partnership of sharing the success of the company in terms of growth and profits. You become in a way minor owner of the traded company.

Usually whenever you pay money to buy a stock, you get a right of one vote for each share of your stock. The extent of ownership depends on amount of shares you own, if you own more shares, you have more control of the company listed in the share market. Most publicly trading shareholders own a very small share of the company, with little hold over management of the company, almost negligible authority in overseeing operations of the company. You have to commit billions or in case of small companies millions of rupees to become primary stakeholder of the company, provided the company is open to public take over, offering large amount of shares. In such scenarios, company owners are open to earn maximum money by diluting their shares. They might even exit keeping minor stake as a token of memory for starting their company.

In short, a company issues shares publicly in the form of stocks so that it can fund its operations and grow exponentially. This way they do not have to take loans to run the company. They keep company debt by diluting some stakes. On the other hand, investors want to buy stock in a company in order to earn high profits whenever the opportunity rises to sell the stock at a profitable price. If the company performs well, the stock you own as an investor will probably show hike in its price, and you eventually make money provided you are willing to sell the stock.

Conversely, If the company perform well below expectations and fails to register growth over a period of time, the stock price declines reflecting the poor performance of the company. At this point, either you choose to wait for some more time or sell your stock losing money.

Stock certificates were issued during initial days of stock market operation. It soon became a written proof commitment, in a way legal contract that you have invested in the company. Old days had a mandatory method to issue share certificates in order to buy or sell or make any transaction for the shares. Most retail investors trusted their brokerage firms to hold their shares certificates.

Today, most of the indexes are digitized, almost all transactions in the exchanges are done electronically. Paperless certificates are reflected in your account in the form of amount of shares you own. Stock ownership is simpler, easy to hold and make transactions. You can sell your stocks anytime in working business hours if you want to liquidate your stock market assets. Your share market basics must be thoroughly clear so that you are able to develop your own stock trading strategies.

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