Introduction to the Stock Market

What is the Stock Market?

The Stock Market is the place where stocks of Public Limited Companies are bought and sold. There are hundreds of stock markets around the world that have listed hundreds of thousands of companies. Stock markets have been around for centuries. The first one was established in Belgium back in 1531. Whilst some stock exchanges are city-specific like the Bombay Stock Exchange (BSE) or the New York Stock Exchange (NYSE), others are country-specific like the National Association of Securities Dealers Automated Quotations (NASDAQ) or the Stock Exchange Sensitive Index (SENSEX).

Why do stock markets exist?

1. Stock Market helps increase investment in the economy: The Gross Domestic Product is highly affected by the level of investment in the country. The governments create various policies to encourage greater investment. The stock market is one of the most important sources for people’s investments. If the stock market is performing well, it helps increase investment from domestic investors while also appealing to foreign investors. For example, Indians can invest in NASDAQ and purchase stocks of companies like Netflix and Disney.

2. Stock Market helps companies in raising capital: The main and most important reason why companies turn into public limited and sell stocks. Whenever someone buys a stock of the company, the company gains that capital. Businesses have the ability to create an IPO(initial public offering) and raise large amounts of cash without having to worry about paying back the money. This way businesses don’t have to go to banks for loans and can instead sell their shares in the stock market.

3. Stock Market helps generate personal wealth: The reason why people invest in the stock market is to increase their personal wealth. The stock market provides a way to invest your income to earn a share of the companies' profits.

4. The market serves as an indicator of the state of the economy: The performance of the stock market can serve as a rough indicator of the performance of the economy as a whole. When there is an upwards trend in the stock market, the majority of companies listed in the stock exchange are rising in stock prices, which is an indicator that the economy is performing well as well. While on the other hand, when there is a downwards trend in the stock market, the stock prices of most of the companies are falling is an indicator that the economy isn’t doing well as people don’t have enough money to invest in the stock exchange.

Stock markets have various other benefits such as enabling the government to increase their tax revenue through companies that trade on the stock exchange.

How to invest in the Stock Market?

Investment in the stock market is usually done either via stock brokerages or via electronic trading platforms.

1. Stock Brokerage Firm: A brokerage firm is simply a place where investors and traders go to buy and sell stocks. The firm acts as a middleman between buyers and sellers and provides a trading platform for everyone. It charges a commission on these transactions. Every time an investor buys a stock, a transaction fee is charged.

2. Electronic Trading Platforms: A trading platform is a program that allows investors and traders to position trades through financial intermediaries and track accounts. Trading platforms also come bundled with other services, such as quotes in real-time, charting software, news feeds, and even premium analysis.

How can teenagers make the best use of the stock market?

Teenagers can’t legally trade on their own unless their parents have created a Demat account for them which will be managed by their parents until they turn 18. So as soon as one has a Demat account, they can start trading in the stock market (These are the regulations applicable in India, they may differ in other countries). Regardless, investing money into the stock market as a young teenager wouldn’t be the recommended move. It’s important to first understand how the stock exchanges work, learn how to read the market, and stay up to date with financial news. A good way to get an experience of trading stocks without the risk of losing actual money could be to practice trading in online stock simulators. These simulators function exactly like the actual stock exchanges so spending some time on them would make one more confident and after a period of time, they can go ahead and start trading in the actual stock market.

In conclusion, the stock market is a great source of increasing your personal wealth. It benefits all stockholders, the firms, the government and the individuals who invest their money. Teenagers must try and make the best use of this source by starting as early as possible. Investing in unicorns right from the start can result in great wealth. Though, investing without having proper knowledge of the market can hurt one’s pocket just as bad. Hence, teenagers should primarily focus on gathering knowledge of the stock market and after some time start investing money in the market.

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