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Basics of Stock Markets - 1

What are shares?

Shares are the number of units that indicate the ownership you own in a company.

If you and your freind together would have started a business then you would have 50% partnership in the business as you both are equal partners. Here since there are only two persons involved the number would be in terms of percentage. The profits earned would be divided equally.

If there are 4 partners then the percentage would be 25% each. If there are 10 partners then the percentage would be 10%. If there are say 100 partners then each one would get 1%. Imagine the case where the number of partners involved is say 1 crore. It will be difficult to give the partnership in terms of percentage.

For this sake, shares or stocks are created in units.

Each Stock has a face value with 10 Rs as being the common. Face value of a stock will be useful for calculation of dividend and for stock splits.

Now a company ABC wants to raise say 1 crore. It will then issue 10 lakh shares of 10 Rs face value. The issuing price can be different depending on the company financials.The company floats an IPO ( initial public offer) where common public can participate and acquire shares in IPO market.

If some one is alloted 100 shares then the person becomes the owner of 100 shares. These shares are in Dematerialised form ( or Demat as it is simply called) and they will be traded in Secondary market.In olden days the share certificates used to b issued in form of paper indicating the owner name, number of shares held etc but we have almost all the stocks moved to Demat form.

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