How stock markets work, explained in simple terms

I'll answer starting with core basics of stock markets, then will explain profitable trading methods to you, keeping it as simple as possible.

Stock markets are a way for companies to sell a "share" in their company, to gain investment for expansion or debt payment etc. Companies bring an "Initial Public Offering" (IPO) to do this. You can apply to buy shares in IPO as well. Your money goes directly to the company in this case, and you get a share in their profits. Share in profit is paid out as dividend to you. If company makes losses, then you do not get paid dividends. Other than this, people like you an me buy and sell our shares to each other, and this is called trading. All the money traded is between you and me, and the company does not benefits from this in any way. Stock exchanges benefit, by imposing tax and trading fee etc. Take for example, you bought shares of company XYZ in its Initial Offer (IPO). You got 10 shares, each costing 100 rupees. Your total investment, 1000 rupees. Now you saw that prices of these shares is moving up, for example each share is now costing 110 rupees. So you sold your 10 shares to me at 110 rupees each. Your profit is the 10 rupee difference, and my investment is 1100 rupees. How did the prices moved up, you'd ask. Its simple demand and supply. At the time of Initial offer, price was 100 rupees. I wanted those shares, but the Initial Offer is closed now. I cannot get those shares from the company directly now. So my other option is, I "motivate" you to sell "your" shares to "me". Why will you sell your shares to me? Because I offered more money to you, per share. You bought at 100 rupees, cost of one share. I made an offer of 105 rupees to you, for one share. Suppose you rejected the offer, did not sold. So I increased my "bid", to 110 rupees per share. You agreed and sold me your shares. Now the "new" price of shares of company XYZ is 110 rupees. Remember one thing, for a share to change price, a trade has to happen. If a trade does not happen, price will not change. Remember I made an offer of 105 rupees as well? But you rejected, so no trade happened, hence price of shares did not changed at that time. It remained as 100 rupees on the screen. But when a trade happened between you and me at 110 rupees, price on the screen changed! Price coming down is similar. Someone places a lower "bid" and if owner of shares accepts the offer, trade happens, and price on screen falls. To make profitable trades, you need to understand this demand and supply for the stock. Technical analysis is one way of doing this. I am sure you have seen charts of stocks before, and analysis of those charts is called technical analysis. Its not difficult to learn, and once you have learned it, you just need some practice to become an expert. I recommend this ebook to you: That ebook has everything you need to know to make money in stock markets. Try it, its a very good book.

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