Stocks indicate units of ownership in a company and trading of stocks involves the process of buying and selling these units to fellow traders in the stock market. Stock trading includes buying and selling other financial instruments like bonds, derivatives etc.
How does stock trading work?
There are two national stock exchanges in India, namely BSE and NSE. These exchanges provide platforms where the shares of companies are listed for trading. Any investor who buys listed shares gets ownership in that particular firm in proportion to the shares purchased.
To be able to do stock trading, the investor needs to first open a demat account and a trading account. An investor can take the services of a stockbroker registered with the market regulator SEBI (Securities and Exchange Board of India) for opening demat and trading accounts.
A trading account is one which is used to buy or sell shares whereas a demat account stores the shares in demat form. Hence, as a trader uses a trading account to buy shares, these units get credited to his demat account. Apart from these two accounts, a normal bank account is also required as the money has to be paid electronically at the time of purchase of stock.
Why are shares traded?
Most importantly, trading stocks is considered a tried and tested way of earning money, i.e. high return on one’s investment. In addition to higher income, the investor also gets partial ownership in the firm and a small part of the company’s profits as regular income in the form of dividends.
When viewed from the point of view of the organization, companies need additional capital to run their business in the long run. To raise additional capital, firms invite the public to invest in the company by purchasing its shares. This is how the shares of companies are traded.
In short, we can say that stock trading can be lucrative but investors should be cautious, aware of market trends and wait for good returns in the long run.
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