Basics of Stock Market Trading

To stay afloat, all companies require funding. The profit earned from selling goods or services isn’t always enough to meet working capital needs. As a result, businesses allow ordinary people to participate in their businesses so that they may operate them efficiently, and in exchange, investors receive a share of the profits.

So exactly what is a share?

Shares allows and individual to hold a portion of the company’s worth. A person can obtain ownership rights to a particular percentage of the company in proportion to the invested capital.

A company’s shares are units of equity. Shares also exist as a financial asset for companies, allowing an equal distribution of any leftover profits, if any, in the form of dividends. If the stock that does not pay dividends, shareholders of such stock are not entitled to profit distribution. Instead, they expect to benefit from increasing stock prices as the company’s share rises.

What does it mean by equity?

Equity means an amount of money a company would return to a company’s shareholders; if the company liquidates all the assets and pays all the debt in case of liquidation. In relation with stock market equity refers to the shares in a company. It is the total amount of money a shareholder is entitled to if all a company’s obligations are paid off and all its assets are liquidated. When a person buys stock in a corporation, he or she becomes a partial owner.

Why do companies issue shares and how do they do it?

A company issues shares majorly for one reason that is raising capital. A company issues shares majorly for one reason that is raising capital. The company may use this capital for expansion, debt repayment or diversification. The company may also raise capital for intangible processes like listing it on stock exchanges as it is a matter of prestige. The company may also raise capital by issuing shares to avoid debt.

The Initial Public Offering (IPO) is another crucial component of the stock market. An initial public offering (IPO) is when a company first sells its stock to the general public. Our markets are regulated by the Securities and Exchange Board of India (SEBI), which has outlined a set of norms and regulations that a firm must follow before being qualified to list an IPO on exchanges.

What is stock market?

The stock exchange is a marketplace where buyers and sellers meet to trade publicly traded stocks at fixed times of the day. The Words “share market” and “stock market” are usually used as if they mean the same thing. The one major difference between the two is that while the former is only used to trade stocks, the latter allows to trade in various instruments like bonds, derivatives, and currency.

Stock exchanges, brokers, clearing houses, depositories, consultants, and investors are among the different entities that make up the stock market. The stock market is one of the most popular venues for investors and traders to trade stocks and shares.

How to earn Money from Stock markets?

So, the easiest way to make money in the stock market is to buy stocks or shares of the company at a lower price and sell them if there is an increase in the price. The difference between the price is profit. Also, there are two ways to make money smartly in the stock market.

1. Investing in stocks is done by investing in companies long-term and holding the position for maybe years. The profit herein is earned in the form of dividends.

2. Trading in stocks is done by traders who deal in stocks for shorter period of time and earn their profits by earning the difference between buying and selling price. Usually Traders do this on intraday basis, i.e. buying and selling stocks within one day.

Taxation on stock trading:

The gains you make from stock market transactions are subject to taxation. The table below provides a summary of how much you will be taxed.

Long-term capital gains are defined as profits made after keeping your shares for a year or more, whereas short-term capital gains are gains made after holding the shares for less than a year.

Long term capital gains tax is 10% over and above Rs. 1 lakh on sale of equity shares and short-term capital gains tax is 15% when securities transaction tax is applicable.

Stock Market trading contains financial risk, so learning about it beforehand will always be beneficial. Investing in education is always better. Invest in learning about stock market trading and then invest in the stock market.

The author Sushant Gangurde is a legal analyst @Taxblock India who aims to educate people about various tax laws and financial planning.