According to , Former Intern, Franklin Templeton Investments.
He said that Everyday, stocks are exchanged and traded in numerous stock markets around the world.
A share market is a place where shares of a particular company can be bought or sold. This is similar to that of grocery store where in you buy a product by paying him the specified amount. In share market, the product is the “share in a company”. You just pay the amount and buy a share in that company.
Let me Explain in detail. Let’s assume you have started a company with a capital of 1000 US Dollars . Your company is doing well and its net asset value increased to 1600 US Dollars. Now you want to expand it. But for that, you need more capital. How do you raise capital?. There are many options. Some being You can take a loan from a bank or You can ask some investors to invest in your company. Lets assume that two investors want to invest in your company, a sum of 200 US Dollars. each. But they would ask some of the shares in your company. Note that till now you are the sole owner of the company. But when they invest in your company, they too will have some amount of ownership in the company. Its completely not your company anymore.
In other words you are selling your share of the company and raising the capital. Now your company’s Net Assets increased to 2000 US Dollars of which 1600 US Dollars being yours and 400 US Dollars being others. Your share in the company is (1600/2000)*100 = 80% and rest 20% of the company shares belongs to other investors.But how to sell them your company’s shares ??
It’s simple. You divide the company’s Net asset value into equal number of parts which in this case is 2000 US Dollars. Lets say you divided the company into 200 parts or units with each part being 10 US Dollars worth (This 10 US Dollars is called Face Value of the Share). Now you give each investor 20 shares. Thus you hold 160 shares and the rest 40 shares are held by the investors.
Now investor 2 wanted to exit from the company due to some reason. How can he do that ?? He can sell those 20 shares he holds. He can approach a group of individuals…. tell them about your company and tell them how well your company is doing and offer them his shares for a price of 25 US Dollars per share (He wants to make profit out of your company’s performance). The individuals who believe that your company can excel in future will buy those for 25 US Dollars and thus become a partner in your company holding 1% ownership in your company per share (This 25 US Dollars is called the Market Price of the Share). If investor 2 sells all his shares…. then he will have 25*20 = 500 US Dollars. which means he will have a profit of 500 – 200(invested amount) = 300 US Dollars.
The Process in the above paragraph is repeated on and on and on. The place where the above process takes place is called stock exchange.
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