In this article, we shall discuss three things:
- What is Stock Market?
- Evolution of Stock Markets
- Types of earnings in Stock Markets
What is Stock Market?
The Stock Market or Stock Exchange is the place where securities like stocks and bonds are bought and sold. It is just like any other market where the customers buy products and vendors sell their products in the exchange for our currency.
It is that simple…
I will repeat it again, the stock market is like any other market where there are buyers and sellers. Since stocks are traded here, it is referred to as Stock Market.
In India, NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) are the two most important and busy Stock Exchanges. Every day, transactions worth thousands of crores of rupees take place in our Indian Stock Markets alone.
US stock exchanges like New York Stock Exchange and NASDAQ are the largest stock exchanges and account for 59% of total global market capitalization.
Indian Stock Markets make up 1.5% of the total market cap.
Evolution of Stock Markets
Nowadays, anyone with a PC, laptop or even a mobile phone and internet connection can trade in stock markets. All they need is a Trading and Demat account for trading and holding stocks.
Everything is online these days. But it wasn’t the case a few decades back. Stocks were physical certificates, buying and selling of stocks certificates happened between brokers and traders negotiating on the physical exchange floor. It is called Floor Trading.
Gradually, over time, electronic stock exchange platforms were created and transformed physical transactions into electronic platforms. Floor trading is still there but most of the trading happens on centralized electronic platforms like NYSE and BSE.
Watch the video below to get a good understanding. The pictures are presented in chronological order from the 1900s to recent years.
Introduction and Evolution of Stock Markets
Do you know that the Bombay Stock Exchange is the oldest in Asia? It was established way back in 1875 by a Jain Businessman.
The oldest stock exchange was created in the 17th century in the UK. It took centuries of transformation and adaptation to get to the current stock markets.
Types of earnings from Stock Markets
There are two income streams from stocks.
The first one is dividends paid by the company. For example, currently, if you buy Tata Steel for 100/-; you will get 5/- as a dividend. This dividend is irrespective of the stock price in the market. The dividend is directly credited into your bank account by the company.
But remember… the companies do not need to pay the same dividend every year. It depends on the financial health of the company and our economy. Sometimes, you may not dividends at all for years until the company generates positive net income.
The second source of income is due to capital appreciation of the stock in the stock market. Suppose, we buy Tata Steel shares now for 100/- and the price increases to 150/- by next year. When we sell it for 150/-; that 50/- price difference is the capital gain. We need to pay tax on that gain.
If we hold the stock for more than 1 year, then we will be taxed under LTCG (Long Term Capital Gains) for 10% if that capital gain is more than one lakh rupees.
Any capital gain before one year of holding comes under short-term capital gain and will be subjected to a 15% tax minimum.
Stock Markets are not get-rich-quick schemes. You are not going to be a millionaire within a month or year trading in stock markets. But if you treat the stock market as some kind of gambling or lottery, you can become a loser within a month or less, that’s for sure.
It takes years of struggle, patience, discipline, and facing losses to become successful traders or investors over a period of time.
That’s it, Buddies!
I hope the information provided is useful. Stock Markets are an excellent source for not only improving our wealth but also for earning regular income if we learn the fundamentals of investing and trading.
Thank you,
Shiva Kumar Lachapeta,
Certified Equity Analyst
Disclaimer:
I provide the information and my views on the website only to educate new investors, stock market enthusiasts, and the common public on equity and other market investments. Please consult your financial adviser before making any investments in the stock or commodity markets. In case of any queries, you can contact me via email ID: shivakumar.lachapeta@gmail.com
