In our last blog, we discussed what the difference between shares and stocks is. Now we know what these terms actually mean, let us see why people sell and buy their shares/stocks.
Why do companies sell their shares?
There are number of reasons that companies sell their shares. The most basic reason among that is raising capital. When a company requires raising money, they have basically two options; one is borrowing money and second is selling shares of the company. Sometimes companies want to eliminate the scenario of borrowed cash repayment as it blocks future cash flow. Here comes the “Stock Selling” option in scene. Once the stocks are sold, company can use the capital in their business. Also there are chances that company can buy their own stocks after a time span.
Apart from this, there can be several reasons behind this decision. However this is the most basic reason behind selling the shares of any company.
What is an IPO?
IPO stands for “Initial Public Offering”. An IPO is the very first share issued by a company to the public. Before IPO, the company is considered as “Private” i.e. consist with primary investors (founders, friends, family etc). On the other hand, after IPO, the company is available for all the interested public buyers. The public will be allowed to buy shares of any company only after IPO, not prior to that. After the IPO is issued, the company stock is traded in Stock Exchange.
Why do people buy Shares?
Are you not wondering that ok, a company raises funds by selling stocks, but what does a buyer earn by purchasing those stocks? Why do people buy shares? Let us find the answers.
Investing in Stock Market, for some people, is about making money out of investments. Suppose Mr. M buys shares of Rs.1 today and sold it at Rs.3 after 6 months. Then the profit made on investment of Rs. 1000 is Rs.2000. Also investing in stock gives the trader an opportunity to own a part of that company.
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