Stock Market - A Complete Beginner’s Guide

A lot of us consider the Share Market and Stock Market as the same thing. But they are absolutely unidentical with a significant difference. A Stock Market will let you trade bonds, derivatives, Mutual Funds that are designated under Financial Instruments. Besides, it also engages you to trade in company shares. However, looking into the Share Market, this platform is only open for company shares.

There are two types of Share Market...

The shares of the company that are announced to the public for the first time before listing on the Stock Exchange with the fresh entries are known as Primary Shares. Therefore, this is overall known as Primary Market. And the shares of these companies are named as Primary Shares.

Leading towards the Secondary Market. The securities that are already sold in the Primary Market and the companies that are listed on the stock exchange are considered as the Secondary Shares and Secondary Market respectively.

Types of Financial Products:

Shares

Shares represent ownership in a company. When you buy a share, you become a part-owner (shareholder) of that company in proportion to the number of shares you hold.

1. Why Companies Issue Shares

Companies need money to:

Start a business

Expand operations

Buy new technology or assets

Reduce debt

Instead of borrowing money, companies raise capital by issuing shares to the public through the stock market. This process is called an Initial Public Offering (IPO).

2. What Ownership Means

When you own shares of a company, you may get:

✅ Ownership rights – You own a portion of the company

✅ Voting rights – You can vote on important company decisions (in many cases)

✅ Dividends – A share of the company’s profits (if declared)

✅ Capital appreciation – Profit if the share price increases

3. Types of Shares

A. Equity Shares (Common Shares)

Most common type

Represent true ownership

Shareholders can vote

Dividends are not guaranteed

Higher risk but higher growth potential

B. Preference Shares

Fixed dividend (usually)

Paid before equity shareholders

Usually no voting rights

Lower risk than equity shares

4. How Shares Work in the Stock Market

A company lists its shares on a stock exchange

Investors buy and sell shares through brokers

Share prices change based on:

Company performance

Demand and supply

Economic conditions

News and market sentiment

5. How Investors Make Money from Shares

1. Capital Gain

Buy at a lower price

Sell at a higher price

Profit = Selling price − Buying price

2. Dividends

Part of company profits paid to shareholders

Not all companies pay dividends

6. Risks of Investing in Shares

📉 Share prices can fall

🏢 Company may perform poorly

🌍 Market and economic risks

❌ No guaranteed returns

However, historically, shares have provided better long-term returns compared to many other investment options.

7. Example (Simple)

If a company has 1,000 shares and you own 100 shares:

You own 10% of the company

If the company earns profit, you may receive dividends

If the company grows, your share value may increase

Derivatives

Derivatives are financial contracts whose value is derived from (depends on) another asset, called the underlying asset.
They do not have independent value on their own—their price moves based on the price of something else.

1. What Is an Underlying Asset?

An underlying asset can be:

• 📈 Shares / Stocks

• 📊 Stock indices (like market indices)

• 🪙 Commodities (gold, oil, wheat)

• 💱 Currencies

• 💵 Interest rates or bonds

👉 The derivative’s value changes when the underlying asset’s value changes.

2. Why Derivatives Are Used

Derivatives are mainly used for three purposes:

1️⃣ Hedging (Risk Protection)

• Used to reduce or protect against losses

• Example: A farmer locks in a future price for crops to avoid price fall

2️⃣ Speculation (Profit from Price Movements)

• Traders try to profit from price changes

• High risk, high reward

3️⃣ Arbitrage (Price Difference Profit)

• Buy in one market, sell in another to earn risk-free profit (rare, professional use)

  
  

Bonds

When you are a beginner and search for the safest investments in India, here, Bonds are the perfect area to rely on. Bonds are acknowledged as the safest ways to invest in the Stock Market because the returns are decided at a certain rate and date. You may sometimes tend to see the uncertainty in the prices of your bonds, but they will never bring you down the interest rates that are pre-decided or mentioned in your contract.

Mutual Funds

Mutual Funds are a vast area in itself. Confused ?? Nevermind !! When you decide to invest your savings in Mutual Funds, here, you are not the direct investor in the Stock Market. The Mutual Fund Managers fix your returns on the invested capital and the same hail in the accounts of the Fund Manager. From here, a portfolio is prepared with authentic research and based on past data. Later alike you there is a pool where every investor's money is collected, and the same is then reinvested in the Market.