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What Is Stock Market Trading, How Money Moves In The Market?

What Is Stock Market Trading: Many of you have heard about stock market trading, money exchange etc, but do you know what stock market and trading mean? Well, Trading is nothing but a flow of exchange, where one exchanges his/her goods and services with another thing. 

Trading is not at all a new concept in the world, our ancestors have been trading from ages. The term trading is a part vintage human cultivation, as the era changed, the style of trading changed too.

In this article, I am going to mention some of the basics but the most important factors in the Stock Market Trading. Stock Market is a place where traders trade their share according to the product. The stock market is nothing but a home for trading and source of income for traders.

What Is Stock Market Trading, How money moves in the market?

Stock Market Trading is not any rocket science or terrible algorithm to understand, trading in the stock market is a basic concept which requires nothing but buying and selling of goods and services, that’s it. The trader trading in the stock market receives compensation paid by a buyer to a seller.

Trade can take place within the economy between generators and consumers. Simply fixed, stock trading refers to the buying and selling of shares of a particular company; if you own shares, you own part of the company.

What Is Stock Market Trading, How money moves in the market?

A stock market is a place, where shares are either used or sold, in simple words, the trader can keep or sell the share depending upon his choice. 

Stock market and share market are not a different concept, but the market varies at a point when the stock market helps their traders to trade financial bonds i.e mutual funds, bonds etc. On the other hand, Share market only allows shares to trade.

There are 4 financial tools in the stock market which you need to know, these 4 financial tools in the stock market are 

Financial tools of the Stock Market

  • Bonds
  • Shares
  • Derivatives
  • Mutual funds

Bonds

If you invest in the stock market to take risks, then you should also have an understanding of the bond market. By buying shares, you buy a stake in the company and by buying bonds, you lend it to the issuer. 

The bond issuer pays you interest for this loan, which is called a coupon. Whenever the government or a company needs credit, it issues bonds. On this, investors are offered a fixed interest rate. If you have invested Rs 1 lakh in a bond and its coupon is 8 per cent, then till the bond matures, you will get Rs 8,000 every year. 

At the end of the maturity period, you will get your one lakh back. Bonds are also called fixed income securities because of fixed income. Now you will ask that once you place money in the bond, it will be stuck for a long period. 

To solve this problem, these bonds are traded in the open market. If a bond with a face value of Rs 10, get value in the open market, then it will state that the bond is selling at a premium, while at a discount if it is cheaper. 

The rating of bonds provides the basis for investment in it. Interest rates have a significant impact on the bond market. Increasing interest rates reduces the returns on bonds while decreasing their benefits. Opening a Demat account is necessary for investing in bonds. You can also invest in it through mutual funds.

Shares

Have you noticed that some people buy shares and keep them in their Demat account, while some people buy shares in the morning and sell the same shares in the afternoon? Both are different types of trading. Let’s try to know the important things related to investing in stocks.

The facility for buying and selling shares is available online. You can buy and sell shares by opening your trading and Demat account in a brokerage firm.

You have to keep in mind that investing in shares carries a lot of risks. If you can understand the results of the companies themselves, evaluate their shares and understand the market move then only you should invest directly in the shares.

What Is Stock Market Trading

Before investing in a company’s stock, it is important to know its business, the true value of the shares (valuation) and the prospects of its business. Stock prices are not stable in the stock market. Generally, when the stock price is low or the weakness in the market is considered the best time to buy the stock.

You can sell the share that you have bought when its value increases. Trading in the stock market can be started with a very small amount.

Derivatives

Derivative trading is also called future trading or F&O (futures and options). Derivative trading in India started in the year 2000. Derivatives are one of the most complex financial instruments, but the probability of returns is also high here due to which this became the major factor in popularizing derivatives trading.

Derivative trading is a trading process in which traders have to legitimately agree on an agreement to trade for any future date or at a fixed price, but all of this is based on derivatives’ underlying assets to assess future values. 

Derivative trading allows both long-term and short-term investors to make a profit. It is a process of buying and selling assets in general. Here instead of paying the entire money together at the time of contract, only the initial margin amount can be paid and the remaining amount can be paid on completion of the contract.

Types of Derivatives

Derivative trading is separated into the following types depending on the terms of the contract:

Future Trading

In a futures contract, one of the two parties is obliged to buy or sell their property at a predetermined price and time, but the conditions remain the same.

Forward trading

In a futures contract, both parties are obliged to buy or sell the contract according to the pre-defined price and time, but in this, the buyer and seller can change the terms according to their requirements.

Options Trading

Buyers of options contracts are not bound by any conditions, but they also have the option to buy or sell securities before their predetermined time and price.

Swap trading

 In this, cash flows are fixed on one side and the other hand they are also variable and based on many basic assets like interest rate, currency exchange rate or index value etc.

Mutual funds

Mutual funds are investment vehicles that allow you to indirectly invest in share market or bonds. It pools money from a collection of investors and then invests that sum in financial instruments. 

This is handled by a professional fund manager. Investing in the share market is risky. Hence, they need to be regulated to protect investors. 

The Security and Exchange Board of India (SEBI) is mandated to overlook the secondary and primary markets in India since 1988 when the Government of India established it as the regulatory body of stock markets. 

Within a short period, SEBI became an autonomous body through the SEBI Act of 1992. 

Conclusion

Thank You For Reading my article about What Is Stock Market Trading. I hope It was Useful For Everyone I Tried to make it Short and Simple.

If you have further queries, don’t hesitate to comment below. I will be happy to help you out.

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