Share trading is generally done by people in order to meet their future needs and also to protect themselves from the impact of inflation. As inflation increases, cost of living also increases. Due to rising inflation the prices of important commodities begins to increase. The purchasing power of money decreases. This can be best explained with the help of an example. Suppose if 6 apples cost 72 rupees today, then after 5 years it might cost around 90-100 rupees. This means that the value of money over the 5 years has decreased.
Investing or trading is thus an important way of making the most of your money. During share trading you are actually buying the stock of a company which is as good as buying a part of the company. Companies are like just any general organism having the fundamental aim of growth. Companies all want to grow in terms of number of employees, number of projects, in terms of net turnover, in terms of their operating margins. As a company grows more and more people will be interested in it. This will lead to an increase in the stock price of the stock of the company. When there are more buyers than sellers then the stock of the price can be expected to rise where as when there are more sellers then buyers the stock of the market can be expected to fall. At any moment the share price indicated the last traded price for that share. Thus if you notice a stock price going down, It implies that more people are selling it off.
Apart from share trading, there are various instruments available where people can invest. There are some instruments which give floating returns like mutual funds, futures and options, shares etc. while there are some instruments which give fixed returns like government bonds, public provident fund, post office savings etc. the risk involved in fixed return instruments is less as compared to what a person is exposed to in floating return instruments.
There is no point in keeping your money idle, instead if they are invested in some type of instrument then not only we will get more than what we have invested but also we can make our future secure.
When one invests in say shares, the investor he keeps it for some time depending upon the stock price. When the rate of shares increases, then he sells it to another party. This is called trading.
The stock market can be said to be of two parts
Primary market: – The companies which are privately owned want to generate money in the market has to first get listed in the stock exchange. For that, these companies have to issue an IPO (initial public offering) in this market.
Secondary market: – The company gets listed in the primary market, then further trading in this stock is done in the secondary market.