Published: 1/25/2025

In this week’s blog, we will be going on one of my personal favourite topics—stock market. We will be discussing what a stock market is, what it isn’t, how it works, and finally how you can use it as a tool for wealth creation. I am too excited, so let’s jump right in.


The stock market, in very simple terms, is a place (online or offline) where buyers and sellers of stock, exchanges money and stocks. Let’s go one step deeper: stock refers to the unit of ownership in a company; i.e., if a company is built of 100 units of stock (or shares) and you own one unit of stock, then you essentially own 1% of the whole company. You are in fact now an owner in that company, having 1% of a stake. The next word is market; market refers to any place where buyers and sellers meet to exchange money and products/services. This place can exist both offline and online, but there should be an “exchange of money and goods/services.”. Hence, any place where buyers and sellers of stocks meet and exchange money and shares is what is called a stock market.

In India, we have 2 offline buildings where the stock market exists: one is the Bombay Stock Exchange (the oldest one), and the National Stock Exchange, both existing in Mumbai, allows its members to trade stocks offline and online through its assigned brokers only (now you know why you need to open an account with a broker to trade in stocks).

The stock market is not a place for getting rich quick or a gambling place, but instead it is just a market wherein the exchange of stock takes place—that’s all. Now, you can use this exchange of stocks to gamble or build wealth for yourself. It’s up to you how you want to go about it.

How do stock markets work?

We now know what the stock market is. As with all other markets, supply and demand (specifically of stocks) is what determine the price of a stock. The instant flickering of price, either increasing or decreasing each second, is actually a live transaction or exchange of stocks and money taking place. Yes, the flickering happens due to each exchange taking place for just more or less price than its last transaction price.

The price that you see of a stock is essentially what that stock traded for in its last transaction or exchange. Price at any moment is determined by how much stocks are up for selling, how many buyers are there looking to buy that stock, and how much willing are buyers to buy a share or sellers to sell those shares. This is why price fluctuations happen and the movement of price is random. As the movement of price is random, there is hardly any way of determining the future price, and that is why we call stock trading speculative.

How to use the stock market as a way for wealth creation?

Wealth creation refers to the accumulation of such stuff that increases in value over time and hence increases the total wealth that you own. Stocks are a great way of building wealth.

As we discussed, when you buy a stock, you are essentially buying an ownership of that company; that means you have a legal stake in their assets as well as their liabilities. So, if a company has 2 machines and 100 rs of debt, then you own 1% of those 2 machines and 1% of that debt (using the example shared in para 2). Therefore, if you want to build wealth, you buy stock of such companies that make a profit—that’s all. Yes, the purpose of any business is to earn profit from its operations. If you are buying a stake in a company to build wealth, it makes sense to buy a stake in those companies that will be able to earn money for you through generations of profits.

Companies, as they generate and increase profits over the years, also lead to increased interest from other buyers willing to buy a stake in that company from you; in this process, they might be willing to pay a higher price than what it currently is, which also contributes to wealth creation.

Now you would be able to understand why it is general advice to invest in companies and not stock's price; while buying a stock, the amount of profit the company generates and why buying and holding is actually good advice for wealth creation if you buy profit-making companies.

Thanks for reading this blog. I hope you learnt something new about the stock market today.

Happy learning! :)