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BASICS OF STOCK MARKET – GAMBLER’S MARKET?

BASICS OF STOCK MARKET – GAMBLER’S MARKET?
Introduction: What is stock market? Gambler’s market or a business market which somewhat control the country’s economy and runs on the basis of country’s economy. In this blog we will discover the circumference of stock market.


What is stock?


To pronounce a word we must have some knowledge about alphabets, similarly to understand the stock market we will have to understand about the word “stock”.

Let’s simplify and understand the deep aspects.
Say I have a simple cake that worth 20 rupees, and I have cut the cake into four equal pieces – horizontally and vertically.
As the cake worth 20 rupees, so per piece of cake will hold 5 rupees each, i.e.; 20 / 4 = 5 rupees each.

So now if I had to sell a single piece of cake to a person, I will demand for 5 rupees in return, right?
If you understood this simple thing, you are 90% clear about the idea of stock.

Here, the cake is a company and the pieces of the company (cake) are “stocks”, company sell the ownership of the company and ask some price for that. After paying the amount for the stock, you own the stock and gain some position in the company.

That’s all about stock.

Why do company roll out their stocks?

The answer is so practical, why do cake shop owner makes cake? To earn or to collect money, right?
Similarly, company officials roll out the company’s stocks to collect money from the market for their future plans.
As simple as that.


What is the significance of owning the stock?


Here comes the interesting part of the market, lets simply understand the significance of owning a stock with the same example.

If the simple cake worth 20 rupees what if I add four pieces of cherries and chocolate worth 10 rupees and make the cake look fancy and ask for 40 rupees now?
Here after simply adding cherries and chocolate I am now asking 40 rupees for the fancy cake, that means now per piece of the cake would now worth 10 rupees each.

The very similar way, if the company performs well then the price of their stocks increases, that depends on various factors but still overall company growth leads to higher prices of stocks.

So now consider you own a normal cake piece worth 5 rupees and the rest of the three cake pieces are now decorated & they worth 10 rupees each now, can you sell your simple cake piece in 10 rupees? Or you have to sell it in 5 rupees?

The answer is simple, you just can not sell the cake piece in 10 rupees as the rest of the three cake pieces are decorated, not yours!

But here comes the twist, in stock market the word “stock” that you own is just a part of the company, it determines your ownership in the company.
That means, you own the cake piece but it stays with other three pieces near the cake owner.

So the significance of owning a stock is so simple, to wait for the cake decoration, that means we wait for the company to grow and when the cake price reaches at some level that we want, we exit our ownership from the company and receive our money at the market price.

How to stock market people earn?

The answer lies within the sweet example, the price of the cake when you buy it was 5 rupees and after some days, month, or years if the price of the stock hits 10 or 15 rupees you exit your position at the market price.

That means, you invested 5 rupees to buy a stock but sold the same stock in 15 rupees so the difference between both becomes your profit.
That is 15 – 5 = 10 rupees!

This might sound small amount of profit but the mathematical magic will blow your mind.
Say you bought 200 stocks of a company worth 5 rupees, you invested 200* 5 = 1000 rupees.
And you sold them in 15 rupees = 200*15 = 3000 rupees

So your profit now becomes 3000 – 1000 = 2000 rupees!

Tabular format:

Here is the tabular format to clarify, price per stock is 5 rupees, and exit price = 15 rupees.

No. Of Stock/ SharesInvestmentExit totalProfit
10050015001000
200100030002000
500250075005000
1000500015,00010,000
200010,00030,00020,000
500025,00075,00050,000
1000050,0001,50,0001,00,000
This is the magic of stock market, the more you invest the more you earn.

Why do people lose money in stock market?

The question is so simple, if this stock market is this simple then why do many peoples lose money in this market?

The answer is simple too though, suppose you own a piece of cake and the very next day the cake gets rancid/ spoiled what will you do?
Would people accept the spoiled cake piece and would pay you money for that?
NO!!!!

So, you are now supposed to sell the cake piece to someone before it gets more spoil, right?
As the cake gets spoiled now the price of cake now drops down, say for 5 rupees to 4 rupees to 3 rupees and when it touches 2.5 rupees you decide to sell them off!

Tabular Format

Here is the tabular format to clarify, price per stock is 5 rupees, and exit price = 2.5 rupees.

No. Of Stock/ SharesInvestmentExit totalLoss
100500250250
2001000500500
500250012501250
1000500025002500
200010,00050005000
500025,00012,50012,500
1000050,00025,00025,000
This the reality, this is why many peoples lose money in this market as they invest in stocks without proper research and lose their capital in initial days and name the market as gambling market.

How to minimise the chances of getting loss?

There is not a full proof plan to choose the right stock, it needs a proper research and analysis and that’s not that much complicated but need to be cleared properly through officials, in this blog I can’t teach the real analysis as it is a topic for experts.

Though I can give you an idea, we are supposed to check about the:

  • Company’s reliability
  • Company’s promoters
  • Cash Flow of company
  • Assets holdings of the company
  • Future plans of company
  • Company’s Debt
  • Foreign institution’s holdings in the company
  • Ownership of the company’s officials in the company
  • Dividend provided by the company
  • EBIDTA of the company, etc…

There are still other factors that we have to consider.
This is the way, the overview of the stock market.

Note: This blog is just for educational purpose, written to educate our readers not to misguide. We do not promote any tip service or anything, 9 out of 10 people lose their money in the stock market.
Investing is a risky task, invest wisely.


I hope this blog might have put some importance in your life, for more such blogs do have an eye on us.

Never let your suspicious eyes as such, help it out with susseye.

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