Stock Market Introduction

Stock Market Introduction

Pakistan stock exchange, declared one of the most growing and emerging markets in the world. Seems though that the time has come when common investors take the best lively possible part in their country’s growing economy. Well the economy depends upon many factors but that is not the topic under discussion.

So let’s get straight to it. What is a stock market and what does it imply? Imagine two people wanting to do a business, a shop or a service center but one of them doesn’t want to work, rather he wants a partnership where he can just invest in terms of money or in business terms, he wants to be a “sleeping partner”. This sleeping partner agrees to some terms and conditions which are laid to him by the other working partner or some rules decided in between them. These rules or terms would normally be like profit/loss sharing on the work they do and how much they need to invest back in the business itself to keep it running.

If you have grasped that concept then surely you can multiply this by a group or a large number of people wanting to invest in even a larger company or any new starter company. A company running or new in the stock market offers a percentage of their ownership in this regard to the common people. So they can buy their share of the company and have had a fair share in the start capital of this company.

Now the question arises why would a company need money from common people to run itself or why don’t they just get it from some any other source, why use the stock market?

Well to summarize this idea, a company needs investment to grow or start a new line of work, in order to do that they offer some of their shares to common people which is interest free meaning a loan where the giver of the money becomes partner of the system rather than a money lender only.

So what’s in it for the people who bought these shares and became those sleeping partners? Let’s see that through a common analogy. You buy a brand new car, and then you use it for earning money so you rent it out to customers. Now let’s see some of the benefits of this trade. You only had to invest one time by buying the car, the rest is up to the customer to pay the dues such as the gas price he uses for the drive. Moreover, he has to fix any damage done to the car during his rented period. You, on the other hand just had to give one principle capital to buy the car and one running capital to maintain the car for its up keep. The best plus side is even more exciting that whenever you wish to sell that car, you can and earn back part of your first invested capital or in some cases even more. Same applies to stocks in the stock market, which you buy for a time being and the company in return mostly pays you in form of quarterly, half yearly or yearly profit on the amount of shares you had of the particular company. And yes you can also sell that share in the open market on current rate if you wish to move to any other company’s share or hold out your money.

The first and foremost way to be a part of stock market is that you open an account with a stock market broker. There is no other way to trade in the market without the broker. A broker is a person who sells and buys shares in your account upon your consent. He charges commission fee for this on monthly or yearly basis. The best part of stock market is that you can choose whatever company you wish to be a part of. You grow with the company, increasing both your running and principle capital.