A stock market to be alive, needs regular visitors who buy sell stocks daily. An individual may not have that many transactions to do daily.

Also if all stock holders and willing buyers start coming to a place daily to buy/sell (Trade) stocks of many companies, it may become a mess.

Setting up a stock exchange involves many costs. You need money to operate. There is a need for revenue model.

Keeping all these in mind, stock exchanges offer memberships and only members are allowed to trade in stocks of that stock exchange.

These members pay regular fees to stock exchanges.

These members are also called as stock brokers, if they offer their services to buy or sell shares you want to.

They will charge you a fee for the same.

As we understood from the previous chapter that, a stock of $1 face value may not be available at $1. It may get a higher value or may not even get a face value.

It purely depends on the buyer interest. The buyer’s interest is dependent on the company performance, growth prospects etc.

Even if you know a company’s prospects are very bright and you want to buy or a stock you own can get a good return if you sell now, whom to sell it to?

So, there was a need for a market place like any other market place (Fruits/Vegetables etc.) where buyers and sellers can meet and arrive at a price to sell buy stocks.

This place is called as a stock market.

As discussed in the previous post, A business may decide to take many partners for the business.

One may invest 5%, another may invest 10% and so on to make it 100% of the money required.

Keeping track of this becomes difficult when the venture is bigger.

Thus a system is designed where the required capital is divided into small units of a fixed value. The small units are called shares or stocks and the value of each stock is called face value.

As an example, if a company wants say 100 million USD, it may be formed by 100 million stock units of face value $1.

So one person may buy 10 units and another 100 units and another person may take 1 million units and so on out of the total 100 million units.

It is not necessary that 100% of the money required for the business to come from stocks.

It is also not required that $1 face value share has to be given at $1. Understanding what is the actual worth of this stock is what will make you successful in stock markets.

You are a businessman. You want to expand. You need money. You have money but not enough for your plans.

What are the options?

Take loans? Yes. A good idea if your shortage is small.

Take a partner? Yes. A good idea if you get a good person whom you can believe and has some expertise and understands the business. But can lead you to unwanted disputes. Good again if your investment requirement is small.

Imaging your business plan needs few crores and you have 25% or 50% of it. It may be difficult to get 1 partner who can invest that amount. Also you may not be willing to give a 75% partnership to him and keep 25% to yourself.

What are the options left?

Take the 75% as loan. But the risk of repayment is huge. It may wipe out your capital before you can establish your business.

This is where the idea of stocks come from. You take many small partners who are just investors but are not involved in day to day operations of your business.

Will explain more in coming chapters.

As a investor, if you like a business which may be worth few millions, and you want to be a part of, you become a stake holder by buying few stocks in that company.

Taking a business to this route has more benefits than just taking some partners for money.

This gives your company a value, visibility, liquidity for investors etc.

A stock exchange is a market place where one can buy/sell stocks (Trade shares) with other members. Apart from stocks, other security instruments like bonds, ETFs, derivatives are also traded.

A stock exchange will offer memberships who can only do transactions in that stock exchange. Due to the high membership fees and complex nature of working, usually individual traders and investors trade through a member who is known as a stock broker.

Even high networth individuals (HNIs), Financial institutes many a time prefer to invest through a stock broker.

Usually stock exchanges facilitate transactions for the market known as secondary markets.

A stock exchange is a big part of a stock market.

More about these terms in coming chapters.

As a first step to begin investing in stocks, you need a stock trading/investing account.

You need to identify a good stock broker who facilitates stock market investments in your local area. Talk to few of your friends around you who invest in stocks to find out the best guy.

It is a combination of low commissions and good service.

You can also invest in initial public offers for which also it is good to have an online account.

Usually stock brokers facilitates your stock investments both through online mode (online trading) or through offline means (You call them and ask them to buy some shares)

These stock brokers are affiliated to one or more stock exchanges. More details on stock exchanges in your next lesson.

Happy investing!!! All the best.