PosiStep 1: What the stock market is: shares, IPOs and everyday trading
Before any number, ratio or chart, it helps to know what is actually being bought and sold. This PosiStep explains the stock market in plain words, with one Indian and one US example you will meet again later in the course: Infosys and Apple.
A share is a small piece of a company
Imagine a company divided into a very large number of equal pieces. Each piece is a share (also called a stock). If you own one share, you own a tiny part of that company: a small slice of its business, its profits and its future.
Infosys, for example, is divided into more than 400 crore shares. Owning 10 of them makes you a part-owner of Infosys, in a very small way. The same is true for Apple in the US, which has billions of shares.
Why companies sell shares
A growing company needs money: to build factories, hire people, open offices or develop new products. It can borrow (a loan), or it can sell part of itself to investors by issuing shares. Money raised from shares does not have to be paid back like a loan; in return, the new shareholders become part-owners.
Selling shares also lets the founders and early investors turn part of their ownership into cash later, because shares can be bought and sold freely once they are listed.
The IPO: when a company first sells shares to the public
The first time a company offers its shares to the general public, it is called an IPO (Initial Public Offering). The company sets a price, people apply, and the shares are allotted. This is the primary market: the money goes to the company (and to any existing owners who sell in the IPO).
After the IPO, the shares are listed on a stock exchange. From then on they can be traded every working day.
Everyday trading: the secondary market
When you buy a share of Infosys today, you are almost always buying it from another investor who wants to sell, not from Infosys itself. Your money goes to that seller. This buying and selling between investors is the secondary market, and it is what most people mean by "the stock market".
The price moves through the day as buyers and sellers agree on deals. You will learn why prices move in PosiStep 4 and how a trade actually works in PosiStep 5.
Where it happens: stock exchanges
Trading happens on stock exchanges. India's main exchanges are the NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange, founded in 1875, the oldest in Asia). In the US, the largest are the NYSE (New York Stock Exchange) and Nasdaq. Infosys trades on the NSE and BSE; Apple trades on Nasdaq.
Each country has a regulator that sets the rules and protects investors: SEBI in India and the SEC in the US. PosiStep 2 covers exchanges, regulators, brokers and demat accounts.
Where PositoAI fits
PositoAI is a free research site. It does not sell shares and does not tell anyone what to buy. It collects public information about thousands of listed companies and presents it in plain words, with its own daily Positivity Score (a single number summarising how a company looks on several measures). You will learn what the score includes, and what it cannot tell you, in PosiStep 19.
Key terms
- Share (stock)
- A small, equal piece of ownership in a company.
- IPO
- Initial Public Offering: the first time a company sells its shares to the public.
- Primary market
- Where a company sells new shares and receives the money (for example, an IPO).
- Secondary market
- Where investors buy and sell existing shares among themselves; the company does not receive this money.
- Stock exchange
- The regulated marketplace where listed shares are traded: NSE, BSE, NYSE, Nasdaq.
- Positivity Score
- PositoAI's own daily score for each company, combining several public measures into one number.
Try it
A made-up company, Sunrise Foods Ltd, is divided into 1 crore (10,000,000) shares. You buy 1,000 shares. What part of Sunrise Foods do you own?
1,000 ÷ 1,00,00,000 = 0.0001, which is 0.01%. You are a part-owner, but a very small one. Large companies have so many shares that even big investors usually own only a small percentage.
See it live on PositoAI
Open Infosys on PositoAI and find three things at the top of the page: the exchange it trades on, its ticker (the short code used to identify it) and its Positivity Score. Then do the same for Apple and compare: where does each one trade?
What this does not tell you
Knowing what a share is says nothing yet about whether a company is doing well, or whether its share price is high or low. A share costing ₹10 is not automatically cheaper than one costing ₹1,000; PosiStep 4 and PosiStep 15 explain why.
Quick quiz
What does owning one share of a company mean?
A share is a piece of ownership. Lending money to a company is a loan or a bond, not a share.
What is an IPO?
IPO stands for Initial Public Offering: the company's first sale of shares to the general public, after which the shares are listed on an exchange.
You buy Infosys shares on the NSE today. Who receives your money?
Everyday trading is the secondary market: shares change hands between investors. The company only receives money when it issues new shares, as in an IPO.
Which of these is a stock exchange?
Nasdaq is a US stock exchange, like the NYSE, NSE and BSE. SEBI is India's market regulator, not an exchange.
Why do companies sell shares?
Issuing shares brings in money that does not have to be repaid like a loan. In return, the company gains new part-owners.
Answer every question on this page correctly to complete this PosiStep.
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PosiCourse is for education only. It does not recommend buying or selling any share. Examples with made-up numbers are not real companies. PositoAI is for research and education only and is not investment advice.