Stock market is also known as Share market. Most probably you guys must have heard about this name. So what is share market? Let me explain.
Share market is a virtual/physical place where public limited companies sell their shares to public. Long ago, before the technology is in place. people use to gather in one place, the shares are written in board and people need to shout to quote their price and amount of shares. But nowadays due to technological adavnce, even a smart phone is enough to buy and sell shares. They sell shares to public, to raise more capital and expand the business. Am not gona go deep inside this topic and may be i will get into it deeply in another post. Once a share is bought from a company it cannot be sold back to the company again.. instead of selling to the company we can sell to other fellow people who are expecting to buy shares.
What is a share?
Share is a part of company. It is not a physical thing. Companies use to sell their part of company to public in the form of shares. Most probably less than 50% of the shares are traded to public due to some legal issues. But even that 50% is nearly.. millions of shares. Shares are priced depending on the profitability of the Company. If someone buys share in a company. He/she is known as the share holder of the conpany. Share holder is somthing like owner. He/ she owns a part of the company. Even if we are a share holder we cannot invlove in the day to day activities.
If share holders cannot involve in day to day activities, who is runnung the business?
Directors. Directors are the people with prior knowledge about the business and are apointed by the share holders to run the company on behalf of the shareholders. This is done through an annual general meeting which is held by the company. There should be a minimum of 3 directors to a publi limited company.
Where is it kept for sale?
Every country has a common authority to monitor the publicly traded companies and list there shares for buying and selling. For example
UK – London Stock Exchange.
Sri Lanka – Colombo Stock Exchange and etc.
These are the authorities responsible for share trading activites.
How can we buy shares?
We cannot involve in buying and selling shares directly. We need find a brokerage firm to involve in share trading. Most of the people dont know how to buy/sell shares and also which share to buy. In those cases brokerage firm will give us thier advice about the shares of the company. Specially It will be helpful for new comers. Let me talk about Sri Lanka. We have many brokerage firms in srilanka which are situated within the colombo stock exchange branches itself. You can visit one of the Stock exchange branches island wide and can get more information. There is no fees for registering but a 1.16% commission is deducted when we involve in trading.
What can we get by buying shares?
We can get 2 types of income.
1 – Capital gain – this is gain through selling of shares to others.
2 – Dividend – it is a part of profit after tax gained by the company. It is divided by the number of shares issued and distributed to shreholders depending on the number of shares held by them. The dividend is only distributed once in a year.
Trading in shares is not easy or difficult either.. confusing right??
Disadvantage – the prices may go up and down at any moment. Also known as bear market(prices go low) and bull market( prices go up)
Advantage – with a better knowledge, this is the one of the place we can earn a great passive income. A sphisticated invester will make money in both bear and bull market.
NOTE – MOST OF THE COMPANIES DISTRIBUTE THEIR DIVIDEND IN MARCH APRIL AND MAY.. I HOPE I HAVE WRITTEN THE ARTICLE IN THE RIGHT TIME.