What are Shares and How do They Work in the Share Market?
When discussing finance, the term 'shares' is a fundamental concept. In this article, we will delve into the meaning of shares, their origin, and provide examples of how shares function in the share market. Additionally, we will explain what a share market is and how it operates.
What are Shares?
A company's capital is divided into small, equal units, known as shares. Each share represents a percentage of ownership in a company or financial asset. Investors who hold shares in any company are referred to as shareholders. Essentially, owning shares means you have a piece of ownership in that company, and thus, a certain level of control and right to participate in the company's financial decision-making.
Types of Shares
There are various types of shares, each with its unique characteristics:
Ordinary Shares
The most common type of shares, these provide the holder with voting rights and the right to a company's profits (dividends) and assets after debts have been settled. Holders of ordinary shares have a say in how the company is run and can elect members to the company’s board.
Preferring Shares
These shares come with a higher claim on the company's assets and profits. Holders of preferential shares are usually not involved in the decision-making process like ordinary shareholders.
Origin of Shares
The concept of shares originated in the early days of commerce when companies started looking for ways to raise capital. Instead of asking for a single large investment, they divided the company's equity into smaller, more manageable units. This made it easier for a greater number of people to invest in the company. Shares have been an integral part of the financial ecosystem for centuries, and their structure and definition have evolved over time.
Examples of Shares
To illustrate the concept of shares, let's consider an example. Imagine a company called TechPro, which is in the business of developing software solutions. If the company wants to raise $10 million to fund its next project, it could issue 1 million shares of $10 each. This means that each share represents a 0.01% ownership in the company. If an investor decides to buy 100,000 shares, they would own 10% of the company and would participate in the distribution of the company's profits or losses based on the proportion of shares they own.
What is the Share Market?
The share market, also known as the stock market, is a platform where the buying and selling of shares take place. It is essentially a market where different investors can buy and sell ownership stakes in companies. The share market allows for liquidity in the economy by providing a mechanism for companies to raise capital and for investors to potentially earn a profit through the value appreciation of their shares.
Modes of Trading in the Share Market
In the share market, transactions can be executed either through stock exchanges or over-the-counter (OTC) markets. On a stock exchange, shares are traded according to strict regulations and guidelines. Investors can buy and sell shares through stock brokers, who act as intermediaries in these transactions.
Understanding the Share Market
The share market is dynamic and can be influenced by various factors such as macroeconomics, geopolitical events, company-specific news, and investor sentiment. These factors can cause fluctuations in share prices, making the share market a complex but exciting environment for investors.
How to Participate in the Share Market
If you're interested in investing in the share market, the first step is to open a demat (dematerialized) account. A demat account is a digital version of a registered holding of securities that allows you to buy, sell, and hold shares and other securities electronically. By opening a demat account, you can become a shareholder and participate in the share market.
Here are a couple of options to open a demat account:
Paytm Money Stock Broker
Go to the Paytm Money website or app to open your stock broker account. Make sure to fill in all the required details and follow the instructions provided to complete the process.
Angel One Stock Broker
Angel One offers a simple and secure platform for opening a demat account. Use the referral code M882999 during the sign-up process to benefit from a streamlined experience.
Conclusion
Shares are an essential component of the financial market, allowing individuals to invest in companies and potentially earn a return. Understanding the concept of shares, how the share market operates, and the different types of shares can help you make informed investment decisions. By opening a demat account and becoming a shareholder, you can start your journey into the world of share investing.
For a comprehensive understanding of shares and the share market, it is recommended to watch the full video available on the subject.