What is a Stock?

A stock represents a share of ownership in a company. When you buy stock, you're purchasing a small piece of that business. This ownership entitles you to a portion of the company’s profits (through dividends) and sometimes voting rights in company decisions.

For example, if a company issues 1,000 shares and you own 100, you own 10% of the company.

Stock vs Share: Know the Difference

While commonly used interchangeably, there’s a technical difference:
- Stock refers to the general ownership in one or multiple companies.
- Share refers to the specific unit of stock in a particular company.

Example:
• “I have 10 stocks” means stocks of 10 different companies.
• “I have 10 shares” means 10 units of a single company's stock.

Types of Stock

1. Based on Ownership Rights

• Common Stock – Voting rights, eligible for dividends, higher risk and potentially higher returns.
• Preferred Stock – Priority in receiving fixed dividends, no or limited voting rights, lower risk.
• Convertible Preferred Stock – Can be converted into common stock, providing flexibility.

2. Based on Company Size (Market Capitalisation)

• Large-Cap Stocks – Blue-chip companies with a strong market presence (e.g., Reliance, TCS).
• Mid-Cap Stocks – Growing companies with the potential to become large-cap.
• Small-Cap Stocks – Young or niche companies with higher risk and reward.

3. Based on Investment Style

• Growth Stocks – Companies expected to grow rapidly.
• Value Stocks – Undervalued companies with solid fundamentals.
• Dividend Stocks – Companies known for regular dividend payouts.

What is a Stock Exchange?

A stock exchange is a centralised marketplace where stocks, bonds, derivatives, and other financial instruments are bought and sold. It ensures transparency, regulation, and liquidity, and only listed companies can trade on an exchange.

Key functions of a stock exchange:
• Facilitates buying/selling of securities
• Maintains transparency and price discovery
• Regulates fair trading practices
• Protects investor interests

Major Global Stock Exchanges

Stock Exchanges in India

India has several recognised stock exchanges. The two most prominent ones are:

1. Bombay Stock Exchange (BSE) – Established in 1875, Index: Sensex (tracks top 30 companies).

2. National Stock Exchange (NSE) – Established in 1992, Index: Nifty 50 (tracks top 50 companies).

Other recognised exchanges include:
• Metropolitan Stock Exchange of India (MSEI)
• India International Exchange (India INX) – set up at GIFT City
• Calcutta Stock Exchange (CSE)
• NSE IFSC – international exchange for global investors

Who Are the Intermediaries?

Several intermediaries operate under SEBI regulations to ensure the smooth functioning of the stock market:

• Depositories: NSDL, CDSL, NCRDL, ICEX Depository.
• Depository Participants (DPs): Banks and brokers like Zerodha, Upstox, Angel One.
• Stock Brokers: Licensed entities that facilitate trading.
• Clearing Corporations: NSE Clearing Limited, Indian Clearing Corporation Limited (ICCL).

What is a Demat and Trading Account?

A Demat account stores your securities electronically, while a Trading account is used to place buy and sell orders. Opening both accounts is necessary to invest in Indian stock markets.

Primary vs Secondary Market

• Primary Market – Where companies raise capital by issuing new shares to the public through IPOs.
• Secondary Market – Where previously issued shares are bought and sold among investors via stock exchanges.

Instruments Traded on Stock Exchanges

• Shares – Ownership in companies
• Bonds – Debt securities offering fixed returns
• Mutual Funds – Investment pools managed by professionals
• ETFs – Tradeable mutual funds that track indices
• Derivatives – Futures and options contracts based on underlying assets

How Are Share Prices Determined?

Prices are determined by supply and demand, company fundamentals, news, economic data, government policies, and global factors such as war, inflation, and currency fluctuations.

Why Do Companies List Shares?

Companies list shares to raise money for expansion, reduce debt, fund research and development, and enhance brand credibility.

What Are Sensex and Nifty?

Sensex is BSE’s index of 30 leading companies, while Nifty 50 is NSE’s index of 50 leading companies. They act as benchmarks for investors to measure performance.

Common Stock Market Terms You Should Know

Final Thoughts

Investing in stocks isn’t just for the wealthy or financial experts. With knowledge, discipline, and a long-term mindset, anyone can build wealth through the stock market.

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