One should inculcate the habit of investing in order to have enough funds for future contingencies. You have to be well prepared for the retirement years. Only earning and saving that money is not enough. The inflation makes the price rise and affects the value of money. In order to avoid the loss of money through inflation, one should invest the money so that it grows. One such investment avenue is the stock market.
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Share market in detail
Share market is the place where the shares get issued and traded on. The share market is quite similar to the stock market. The main difference between the stock market and share market is that in stock marker one can trade in different financial instruments like mutual funds, bonds, derivatives and also the company’s shares. But in the case of the share market, only the shares can be traded.
The stock exchange plays the important role here. It is the basic platform which offers the facilities to trade in the stocks and securities of the companies. Only those stocks can be sold or bought that has been listed on the exchange. It is considered the meeting place for the buyers and sellers.
The share market is broadly classified into two types- Primary market and the secondary market.
Primary market- In this market, the organization’s gets registered so that they can issue shares in order to raise money for their business activities. An organization basically enters this market to raise funds or capital. Whenever the organization sells its shares for the first time, it called an Initial Public Offering. Then the organization becomes a public company.
Secondary market- The shares after getting sold in the primary market, gets traded in the secondary market. It gives an opportunity to the investors to sell those shares and exit the market. It is the market where the traders buy or sells the shares of the organization at the current market price or else at a price that is agreed upon by both the parties. Usually, the traders conduct these transactions with the help of an intermediary like a broker.
Instruments traded in the stock market
The different financial instruments that are traded in the stock market are:
Bonds- Organizations require funds to undertake projects. When the organization borrows them money from a bank, it is called a loan. But when they borrow money from different investors, it called as bonds. In both the cases, they need to pay an interest to the lender. Hence, the bond is also known as a debt instrument.
Mutual funds- It helps you invest directly in bonds or stocks. It helps in pooling the money from different investors and then invests the amount in financial instruments. It is done by the professional fund manager.
Derivatives- The share value keeps fluctuating and it becomes tough to fix a price. In derivatives, the instruments help the trader to fix a future price today. One enters into an agreement either to sell or buy the financial instrument at a future date at a particular price.