Basic understanding of Shares
After the great understanding of some basic terms, the big word in finance comes into the picture that is none other than ‘stocks’. You may be understanding the term through a gambling market but the real picture is something different. A better understanding of this term in the easiest manner possible is derived in this very writing. Many people think of this as if you start investing and earn profits you may be carried away with this and end up losing all the money you have and also the stock market shows you profits in the initial stages and the real colour comes to the action soon you are all in. Understanding the stock market in the simplest example is continued on.
So staring with the basic understanding consider you are an owner of a food outlet where you only sell Punjabi dishes and the shop is doing well you have some customers asking for other type is dishes too but you cannot break the ecosystem of the shop as you have limited funds and can’t afford to expand so you need money from the open market. That’s where the shares come to the scenario you need money, people have money so you register the firm at the stock exchange and give the total amount that you require to expand the business so the people can lend you in exchange for money of money you give them a certificate of shares or a balance in digital form. This is called an ‘IPO’(initial public offering). And as soon as all your shares are allotted the trading of your shares start. You have got the money to expand and do the same you added continental food cuisine and many other dishes too you started more outlets under your name for the food business. Now the people who have given you money for the business expansion you need to give them rewards that reward is called ‘DIVIDEND’ this is some part of your profit which you distribute to your shareholders. The people who lend you money and for exchange you gave them the shares are called shareholders of your business.
Conditions
- You will decide the total amount of money you require.
- The number of shares and the price of the share will be decided by you.
- You will list out the people to who you want to allot the shares.
- Each share will give them a vote for decisions you need a majority from the side of shareholders too in case of any decision making of the business.
- After the trading starts you may not have any control over the fluctuation of the value of shares that may be affected by the external forces rumours or any wrong decision of yours.
After considering all these points let us proceed further. The biggest question for the stock is how is the value determined, how there are ups and downs in the value of shares. So that is completely depended on the demand-supply rule but we will make that easier.
Your business is going on very well and people got to know about your business and got to know that your graph of growth is very bullish, and you also give a good amount of dividend to the shareholders so people will also like to have shares of your business so the demand of your business’s share will increase and in front of that the total number of shares that the shareholder are willing to sell will be considered and the price of the share will be decided, hoe much hike share is getting in terms of demand.
Seems easy and good right? But remember there is a downfall too. Now consider that the nation is in the phase of lockdown your business is closed for a long time so the shareholders will be more concerned about their money and start selling thinking what so ever money they get form selling to go for that but on other hand demand of your shares is not much as yours business is closed for almost 3 months. So the supply will be greater than the demand so the price of shares will fall. As with the closed business, you will not be able to make profits and sere them dividend.
So this was an example of the basic understanding of shares, as such the example is fictional only for your understanding there are various norms by the companies act 2013. Just make sure that this process is on a very large scale and there are a number of forces which will affect the share price positively as well as negatively too.
So be wise before understanding and investing.
