What is stock market

When I started my journey in the investment field, my very first step was to find a professional training institute. It was and still is my basic nature to doubt and dig deeper before coming to any conclusion. So I used to take some thoughts about my choice from friends, elder siblings, and uncles. When I talked to my uncle regarding choosing a career path into the stock market he got angry saying, "so you want to gamble for all your life." That conversation did stall my journey for a while until I found why the stock market is not a place for gambling. This wisdom came to me after reading and understanding the basic structure, need, and importance of the stock market in the economy. 

Stock Market

The stock market is a place where people with unproductive cash meet people requiring cash for starting or continuing productive work through intermediate bodies who ensure the smooth functioning of the meeting.

In simple terms, there are some organizations which are running some productive business activities, at some stage, they may require financial help to continue the activities or to expand the scope of these activities.

How will they fulfill this financial need?  

Small to medium-sized organizations can opt for Bank loans, but when the requirement is in thousands of crore it will be hard for the organization to borrow the required amount from banks only. In such cases the stock market allows the company to borrow funds from the general public through products like Equity, Bonds, or warrants. The general public may choose to accept or reject funding the company by buying or not buying these products issued. If people are satisfied with the value these products offer they will buy it and the company will get funds for fulfilling its financial need. All Such products(Securities) will be explained in detail in the next post, for now, let us understand various bodies of the system.

Bodies of the Stock Market

• Investors: Investors are people who have surplus money without any productive use for it. Due to inflation, the value of stalled money keeps depreciating if not put into some productive work. So the investor has been parking their money into real estate, gold, bonds, and equities for years. Investing money into such assets nullifies or overrides the effect of inflation and the investor gets profits from cost appreciation. In recent years the stock market has got popular for such investors because of its ability to override inflation marginally. In stock market investors are the buyer of securities. Investors could be retail(general public), government entities, financial institutions, etc.  
• Borrowers: Borrowers are those who need money for either starting/continuing/expanding some productive activity. The borrower prepares a road-map of the activity for which they require money and present this information to investors. The borrower decides the type of security they want to issue along with the major terms of security. e.g. ABC corp. want 100 crore rupees for expansion of their business. Now they may issue 

1. 1 crore debenture bonds at a price of 100 rs with a 10% interest rate or
2. 1 crore equity shares at a price of 100 rs which comprise of 10% stake in the company. 

• Intermediaries: The purpose of the stock market intermediaries is to enable the smooth functioning of stock market operations. Various stock market intermediaries are stock exchanges, Brokers, Merchant Bankers, etc. Detail function of each intermediary will be discussed shortly in future posts.
• Regulatory bodies: SEBI and RBI are major regulatory bodies for the stock market. Their function is to keep an eye on all the activities in the market and make sure no fraudulent activities are performed. The introduction of SEBI was a turning point into the Indian Securities market as it has imposed trustworthiness. We will discuss details about regulatory bodies in future posts.

I hope you understand the need and importance of the Stock Market if you have any query feel free to comment.

And don't forget to Read to Learn Investing.