Basic stock market concepts: What are shares?

“They are most associated terms with stock market investments. We do either buying or selling i.e. trading of shares based on the performance of the stock companies”

The aim of many companies is to attract even the small investors to invest in their company. But company worth’s crores of rupees, so not possible for small investors to invest that larger amount. Hence the total value of the company is divided into small divisions, called shares.
For example, if the value of the company is 50 lakhs. The shares equal to the 50 lakhs rupees will be allotted by the company i.e. 5000 shares each of cost 1000 rupees. (Companies specify price range to their shares based on their desire, but total value of shares should be equal to the total value of the company). Anyone who is impressed by the performance of specific company can buy its shares from stock markets at price they are currently trading. If company of which you bought shares is performing well and getting good profits, company value rises and ultimately shares prices increases. This is based on the demand and supply rule. Hence of buying right company shares is a logical art, which make you good profits.

The owners or who are part of company management and holding large number of shares are called promoters of the company. Promoters and other shareholders of the company, who are part of the company decisions, are restricted to trade their company shares in stock markets (can sell/buy their shares only with adequate information supplied to the stock exchanges).

Only the shares that are sold by company owners on the stock markets are available to trade by public, this is called as open market. Investors should buy shares at the fixed price range by company, if it is newly listing in stock markets (through IPO). But once listed in stock markets the price of shares changes basing on performance of company and investors can buy shares at the current market price (CMP).

Companies have a right to make desired changes in the shares i.e. they can split or bond shares or can issue bonus shares to their shareholders, provided the total value of the company will not changes. For example, company can split its share pricing 1000 rupees into 2 shares each valuing 500 rupees or can bond two or more shares into one valuing accordingly.

As the shares are a part of the company value, hence they are often called as ‘equity shares’. Equity shareholders (who buy company shares) can demand the company regarding various aspects of their business. And even can change the management of the company, if have 51% of the total shares in your hand. Hence companies generally hold more than 51% of shares and sell some percentage of shares in stock markets to public holding. The shares that are trading on stock markets for public holding are called free float shares (free float value of company). For example, 90% of company shares in promoter’s hand, only 10% in stock markets, so 10% shares are free float shares. All the shares we are buying on stock markets are free float shares. Even though only some shares of company trades in stock markets, the value applies to all shares of company. The total sum of value of shares calculated by their market price is Market Value Of The Company.

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