Learn the Basics of the Stock Market - Course 1

Basics Of The Stock Market 

This course breaks down the basics of the financial industry, focusing on the stock market so that anyone and everyone can understand just how the stock market works.

The Financial Industry

So you want to learn about the stock market…but where do you start?

The financial industry is really complicated. There are investors, brokers, traders, lenders, borrowers, advisors, companies, banks, stocks, shares, funds, prices…the list goes on and on and on. It can really make your head spin!

But it’s important to have a “big picture” understanding of all these elements because together they bring this thing we call the “stock market” to life.

It’s true; the stock market is like a living, breathing organism. And it’s always changing and evolving. But at some point, we’ve got to slow things down a bit and take a look inside.

That’s what we’re here to do today.

This course will put a magnifying glass to the financial world. We’ll go through the history of the financial industry and work towards understanding its basic structure. We’ll then zoom in and take a deep look at the stock market and how it functions.

So buckle up, because we’re about to jump on in and demystify the world that all those big wigs don’t want you to understand.

If you have read thus far cheers up…….you have completed 14% of this section…..keep moving

Why Does The Financial Industry Exist?

From bartering, metals and gold to paper bills and credit, money has always been around, albeit in many different forms.

Money was created out of a need to trade goods and services between one another. People always have needs. They need food to eat, clothes to wear, and shiny sports cars to…look cool. OK, some of our “needs” are more like “wants”. But either way, people look for ways to satisfy their demands.

Way back when, people traded goods in order to get what they needed, by giving up what they had. Let's say, I trade you a goat for a gallon of milk. But not all products and services are tradable. For instance, you wouldn’t trade wheat for electricity. So, we turn to money.

Money is the middleman. Money takes care of the transaction between buyers and sellers.

But as our world has developed and grown more complex, so has the meaning and purpose of money. We're no longer dealing with shepherds bartering sheep. Today we have multinational corporations that handle millions and billions of Rupees. In order to handle this evolution, we needed a way to organize it.

Enter the financial industry.

In a nutshell, the financial industry is all about managing money: investing it, growing it, saving it and ultimately spending it.

The stock market is at the centre of all this, where people (investors) and businesses meet to make transactions and respectively manage their money.

Well you have done 29% so far, happy? Read on….

Why Does The Stock Market Exist?

The real birth of what we think about today as the stock market started way back in 1896 in Sri Lanka and 1602 in the World, with the Dutch East India Company. Historians claim it to be the first company to ever offer shares to investors in exchange for a portion of its profits.

The stock market exists so that companies can raise money without incurring any debt (such is the case of a loan). They issue shares of their company to the public in what is known as an Initial Public Offering (IPO). Investors buy and sell these shares (or stocks) to one another on the stock exchange, thus making stock prices move up and down. If there are more people buying a stock than people selling it, the price goes up with the demand. If more people are selling than there are people buying a stock, that’s a sign that the company is unfavorable to own and the stock price drops.

The stock market is mutually beneficial to businesses and investors because:

·         Companies raise money to (try to) make their businesses grow

·         Investors invest in businesses to (try to) make their money grow

 

Let’s make it simple with an example: Elephant House (CCS.N.0000)

Let’s say you really love Elephant House Drinks. You have a demand daily for 3 bottles of EGB. In order to buy your EGB bottles, you need money. You make a pretty nice income from your job, but you’d like to have some extra disposable income so that you can afford your EGB bottles.You decide to grow your money by investing it in the stock market.

Elephant House understands that you (and millions of other people all around the Country and the World) have a demand for EGB daily. In order to satisfy that increasing demand, Elephant House  needs to grow; and they need money to do that. The company needs to buy more raw materials, hire more employees, open new Factories and Outlets, etc. So, in order to raise this money, they issue stock to investors on the stock market.

This means that they cut up the company into millions of (figurative) pieces. They sell these little pieces of the company, known as stocks, to people like you and me. If you own a stock, you own a little piece of the company.

Since you love EGB so much, you believe that they’ll be able to successfully grow and satisfy more peoples’ demand for EGB. You think they’ll buy more Raw Materials, hire skilled employees, and open beautiful new stores. So you decide to buy Their stock. This means that you own a little piece of the company. If Elephant House grow and make more money, your money grows along with it.

Now let’s look at the places where millions of these transactions take place each and every day: Colombo Stock Exchange.

Do you know how much You’ve read so far? 43%......keep it up you have the interest to invest

Colombo Stock Exchange

Remember when you were a kid, You and your friends use to trade cards of various types like Cars, Fighter Planes, Heroes? Well the stock exchange is like that…but for adults (if you can call them that).

A stock exchange is where investors trade their shares of companies to one another. That’s why stock prices are constantly changing. If more people are selling (and therefore trying to get rid of) a stock than those buying it, the stock price will drop. If more people want to buy a stock than people selling it, the stock price will rise. Stock exchange bring all these investors together, so that trades happen in a central and regulated place.

There are hundreds of stock exchanges all over the world. In Sri Lanka we have the CSE.

A lot of today’s trading takes place online, rather than on the trading floor on CSE. But that doesn’t mean the stock exchange lose any importance. Even though it all takes place online, each and every trade placed has to go through CSE  in order to match buyers and sellers together.

Next we’ll go through the different type of investors that are trading on these stock exchanges…

Great you’ve finished 57% of this course…….yeah!!!!

Investors

There are two types of investors out there: Institutional and Retail.

Institutional investors are large firms like banks, investment companies, mutual funds or hedge funds that invest pools of money on behalf of their investors. They make up the majority of the volume (number of shares traded) on the stock market. Because some of these firms are so large, their trades have a significant impact on the share price of a company. Institutional investors are sometimes referred to as “smart money” (but usually only by other institutional investors).

A Retail investor is…well…you. It refers to someone who puts money in the market for themselves: an individual investor.

71% complete a little more…….You need to know the rest too

Brokers & Brokerage Firms

Buying a stock is a tad more complicated than buying something like...say...A House. To do that, you could just jump on Hit Ad and put up an ad, find a seller, and meet up to get the House yourself. You’d be killing riffs in no time.

Buying a stock is more like buying a house through a Broker or a Real Estate Agent. That is because they will give you more ideas, knowledge and information, as buying a New House needs to be carefully done. They have all the information and knowledge to guide you in the journey of investment and trading.

In Sri Lanka we have Brokerage Companies Licensed by the SEC, and are members of the CSE. Within these Companies you have Investment Advisors, whom you will have to connect with. They are trained and equipped to train and guide you in the journey of investing or trading.

The Brokerage Company presently gets a fee of .64%, out of a total cost of 1.12% as stipulated by the CSE. This fee is charged when you Buy and Sell Stocks.

86% over……..

Choose Your Broker. If you think I can be yours call me for more on 0773219506, am on whatsapp and viber as well. My email is: saliya@capitaltrust.lk

Hurray!!! You made it 100% complete.