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Why Company Raise Funds by Selling Stocks?

A stock trader must understand why company willingly open their stocks for public trading. Let us find out why stock trading is a win-win arrangement for both investors and companies. To understand it, we must know what is sensex and how it is operated in Indian market.

What is Sensex?

The BSE SENSEX is open to all and publicly traded market-weighted stock market index of 30 well-established and financially sound companies listed on Bombay Stock Exchange.

The sensex depends on 4 factors of stock trading.

  1. Stocks
  2. Pricing
  3. Earning
  4. Investment

Company Offering Stocks

A company that needs more cash flow to expand and grow might sell stock. A company can approach banks to avail funds to expand its business, or to avoid debt can sell their share in the form of stock. If the company decides to take out a loan, the debt (which includes the original loan amount plus interest) must be paid back. If the company decides to sell stocks, the profits are shared among those who own the stocks. These individuals who buy and own securities are called shareholders. The amount paid to the shareholders depends on the success of the company. If the company makes profit, then its traders and investors also earn money. If the company does not do well, then its shareholders don’t profit either. With stocks, the company reduces its liability, it does not ensure that its shareholders will be compensated. This is a risk of stock trading that shareholders face when they invest in share market.

Is Stock Risk Free?

No, stock prices change every day as a result of supply and demand. If more people want to buy a stock (which is “demand”) than sell it, then the price of the stock increases because there is a low supply of the stock. If more people want to sell a stock than buy it, then the price of the stock decreases. The stock prices decrease in this circumstance because there is a greater supply of the stock than demand for it.

How Stock Earnings is Done?

To calculate stock market earnings, you will find the amount you spent on the stock by multiplying the number of shares that he bought by the purchase price per share. Then, you can calculate the amount the stock sold for by multiplying the number of shares by the selling price per share. Lastly, you will subtract the two numbers to find the total gain or loss. If the amount the stock was sold for was greater than the purchase price, then there will be a gain. If the amount the stock was sold for was less than the stock purchase price, then there will be a loss.

How Investor Invests in Company Stocks?

Without involvement of investors, stock market would not exist. Usually investor analyse company background maintaining a list of sector wise investment plan. Most investor make a list of 10 different companies and map their historical data with the current prices of their stock to understand the factors responsible for their rise and decline. They end up investing in up to 3 companies depending on their investment budget.

If you become a big investor you will also seek exposure in different stocks putting heavy investments in them. You will choose to either sell and buy different stocks, or hold onto the stocks depending on demand and supply. This will also be based on your long term or short term investment commitment. The commitment comes with years of experience after undergoing stock market courses.

Investors are of two types; financial investors and strategic investors. You can be either of them or both depending on type of exposure you want in Indian stock market. Financial investors invest for short term quick profit while strategic investors put long term investment in a company.

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