Wednesday, October 02, 2002

Stock Market # 2

Ok, now for the gist of where this sort of money comes from and how it gets churned in the markets. Have you ever wondered what happens to all the money that is in the banks? What happens to all the surplus money that is with the companies/socities/associations? What happens to all the money that the government lotteries collect? What happens to all the money that people save and decide not to keep in bank? It all gets churned in various hands and in one way or the other ends up in share market. For instance Maltman decides to save some of his income. He decides to put that money in Bollywood Ltd (in return for shares) because the company claims to give 10% more returns than what one would get from a bank. Like Maltman there are millions of people who come to a similar conclusion and they all invest.

If Maltman wanted to sell those shares because he has urgent need for money, he would have to go find someone to buy it. Likewise if he wanted to buy some shares of Aishwarya Ltd he would have to go to the top of a building and use a loud speaker to find out if there is anyone willing to sell their Aish's shares (no one likes to partake Aish you see). In order to stop this kind of hassle, a stock market was formed (like fish market, vegetable market... ) so that all the buyers and sellers of all shares in various companies could meet in one place and do their business.

Hmmm.. come to think of it, the situation would be worse than a fish market because there would be millions of people trying to find the right buyer / seller at the best price and all bargaining with each other. Someone also had to keep the records after each transaction to make sure that fake shares didn't get traded. So what did the stock markets do? The appointed brokers. Brokers are people through with you can buy/sell without much hassle. To become a broker you have to pay a large deposit (to ensure they don't cheat). Of course you can do transaction without them but they are the people who are more likely to give you the best price for either buying or selling. Of course they charge some commission but overall you will come out better if you do the business through the brokers and will also ensure that 'genuine' shares get traded. So its safer - safe from the likes of Salman Khan Ltd, which I will elucidate tomorrow ;-)


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