Is the stock market a form of gambling? And what’s stock market blindness?
Surely I can be assured that a huge percentage of the people might think a stock market is a form of gambling where the people just lose money most of the time and those who make money are just by luck! Didn’t you have this feeling? Agree or not when I first started as a newbie I was always speculative about the market as one where I just will lose money. Looking backward I realized that I was completely WRONG!
To make all your thoughts clear about the market and have greater clarity about the opportunities available in this field I came up with an idea of creating a series of short and useful articles on the market with the help of geek2investor.com, where I will try my level best to explain things in layman terms and will try to change the whole perspective of yours in a way so that you should not have market blindness!
Hold on a second. Now, what is market blindness? You never heard of this word before? No worries I just have coined this term while studying markets. Hold your seat tight before I give a clear explanation.
Let’s jump together into the world of the stock market and remove our market blindness.
What is stock market blindness?
People around you might always talk about the selfish motives of the market all the time which eventually gives chills through your spine. When you look broadly, the term market defines to be an agreement between sellers and buyers. So technically we cannot blame a single entity for being selfish, isn’t it!
Stock Market Blindness is a term that shows the inevitable conditions of the market which retail investors (newbies) never look into and hence tend to lose some of the money or all of the money. Later they blame the market for this cause which should be stopped completely.
For your curiosity, you can check out my previous article “How I made my first 300K before 26” where I have explained my past experience with the market and how I came out of the stock market blindness situation.
“It’s human nature to make the complex manageable and determine things that fit your conclusions. That’s bias.” — Richard Burr
Introduction to market
As per the definition, a stock market is a place where different markets and exchanges come together to initiate a process of buying and selling and issuance of shares under a regulated platform.
Suppose there is a company A which has been in the market for so long and now it wants to expand. But there is an issue, company A does not have enough capital to do the expansion, now what to do?
Here the company A wants to go public through an IPO or Initial Public Offering where he decides to offer a portion or a percentage of ownership of the company to the public.
Let’s say company A needs $5 million for its expansion. So, it introduces 200K shares to the public at a rate of $25 per share.
You can buy shares which are also known as stocks of a company through an open market ie, stock market through an exchange.
Shares are defined as a percentage of ownership in a small or large company that has declared their names under these exchanges.
Generally, companies need additional capital for the purpose of expansion and many other things and the stock market is one of the most important ways for a firm or a company to raise capital by issuing shares.
People might use the stock market and stock exchanges interchangeably. The latter can be considered as a subset of the stock market.
“As human beings, we suffer from an innate tendency to jump to conclusions, to judge people too quickly, and to pronounce them failures or heroes without due consideration”. — Prince Charles
History of SEBI
SEBI or Securities and Exchange Board of India is a Government-owned regulator established on 12 April 1988. It owned its statutory power on 30th January 1992 through SEBI Act.1992.
Structure of SEBI
Functionality of SEBI
According to Wikipedia, The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”.
SEBI fulfills the need of three groups in the majority
- Issuers of securities
- Investors
- Market intermediaries
SEBI made a huge achievement by making the market electronic and paperless by introducing T + 5, followed by an improvement of the T + 3 rolling cycle process. Here T + 3 means the whole process of settling down the transaction between the buyer and seller takes 3 days from the date of the trade.
What are the stock exchanges?
As I have already explained above that the terms stock market and stock exchanges are used interchangeably but the later one is a subset of the stock market.
Stock exchanges are the places where the buyers and sellers trade the shares of different companies through different channels.
Below I have explained the different stock exchanges available in India and the two majorly used exchanges for trading across the nation i.e, BSE and NSE.
Are stock indices different?
Now that you have gone through the basic structure of the stock market and the different stock exchanges available, I tried to give you a small and precise list of the stock indices which are used extensively to understand the performances of the stock exchanges and the sectors comprising it.
Why should I learn these terms?
Now comes the most important question in your mind: why is it necessary to understand all these terms when I can simply watch tutorials and jump directly into the trading system and start making profits.
The answer is: try to make the base of your structure strong first and then try to move above each step at a time.
The process of learning is like a ladder, you miss a step and there might be a chance of you taken completely down.
For long-term applications, you need to be thorough with the terminologies used in the general market. As you move forward into using sophisticated trading platforms you will come across these terms quite often.
Is it that simple?
Yes, it is as simple as you reached till here without getting stuck, and if you keep on going through all the series of stock market basics articles, you will surely win the battle by 50% already.
Awesome... So what next?
Pat your back as you have reached till this point and I am sure that you have taken a huge percentage of knowledge out of it which will be used in the future.
I hope my approach to explaining the stock market basics was simple enough.
I have faced many technical challenges when I entered the market at an early stage. My level of understanding was the bare minimum, but my ability to constantly adapt to the changing world and to learn crucial information out of it, helped me succeed. I still believe if we both help each other out in our journey, we will not only be successful but the happiest person in the World.
Because
“Sharing is caring”
Conclusion
- The stock market is not at all gambling.
- The stock market is a platform where all sellers, buyers, and issuance of the securities are traded in order to make profits.
- Every company requires capital for working and hence through a proper channel (ex: IPO) they create shares of their company and make it available in the stock market through exchanges so that investors can buy/sell it in exchange for the required capital.
- Shares are the partial percentages of ownership in any firm or company.
- SEBI is an autonomous statutory body owned by the Government of India, which takes care of regularity of the market, transparency, risk management, fair use of market, etc.
- Stock markets can be rooted down to stock exchanges. There are different stock exchanges, out of all the majorly used are BSE and NSE.
- BSE is the oldest stock market and NSE is the largest market with respect to traded volume.
- NSE is a more liquid market.
- BSE consists of nearly 6000 firms listed under it.
- NSE consists of nearly 1800 firms listed under it.
- Sensex is a market index that is used to understand the performance of BSE. It consists of 30 firms. Also termed as Sensex/ BSE- 30.
- S&P CNX Nifty or simply Nifty is a market index that is used to understand the performance of NSE. It consists of 50 firms. Also termed as Nifty- 50.
I am planning to release a series of articles where I will be driving you through the ups and downs of the stock market and will help you make your concepts strong.
For suggestion and recommendations feel free to reach out to me at hello@geek2investor.com
