What is stock market system?
When a business company is formed, it goes public to collect money to expand itself. It gets itself listed at the stock exchange and issues initial public offering (IPO) to invite the general public to subscribe to its stock. The market where the initial sale of shares of the company's stock takes place is called primary market.
?A market is primary if the proceeds of sales go to the issuer of the securities sold.?
The new shareholders of the company expect quick return from their investment. Most of them wish to sell off their shares at their projected higher market price and go for better opportunities. There are still others who need money to meet their emergent necessities and want to dispose of the shares even at a loss.

The truth is that the buyers of the shares at the IPO are traders who generally do not want to enter into life long partnership with the company. They want to cash the business opportunity offered by the newly formed company.

Moreover the company too collects the money it needs by selling its stock through the IPO; therefore it wants to concentrate on its expansion program.

So in order to facilitate the sale and purchase of shares bought at the IPO, the concept of secondary market or stock market came in. It is called secondary market probably because it allows the primary?(first buyers) to sell their shares to others, the second buyers who can continue trading them within the framework of the stock market system.

The second buyers may also include those traders who could not buy the company's stock at the IPO because probably it was fully or over subscribed. These buyers usually buy the shares at some premium over its issue price at the IPO.
Earlier the stock trading was confined only to physical stock exchanges and was confined only to limited number of persons.

The advent of computers, internet, information and communication technology has brought in a new awareness in public about the benefits of trading in stocks and shares.

The establishment of online brokerage firms has made it easier for the public at large in the remote corners of the country to take to stock trading

With the passage of time the process of selling and buying stock has become more complicated and challenging due to the increased participation of the trading public and the influx of more and more business enterprises.

Technology has helped in providing more efficient and cost effective ways of making transactions. This has enabled the traders to place their orders and realize the payments in timely and secure manner.

If you are new to stock market trading, here are certain important points that you must bear in mind in order to make money rather than lose it.

1. You must understand the concept of Price to Earnings Ratio also called PE ratios in its true perspective. PE ratios are easy to calculate and this is precisely the reason why you read so much about them in the newspapers.

You must take care not to compare the PE ratios of companies from different industries since these companies work on different variables.

Even if you try to compare the PE ratio of the companies within the same industry, you still may not get the composite picture of their financial fundamentals and stock values.

2. The stock market is often compared with gambling and you are warned that you should be prepared to take high risks. This is false advice. Every business has its high risks as those in the stock market.

There are ways to make income in stock market while minimizing the risks.

Here are some don'ts:

?Do not invest more than you can easily afford to lose.
?Do not invest more than 10% of your investment in any one stock.
?Do not invest in more than 2 or 3 stocks in any industry.
?Do not buy your stock in one go, all at once. Buy your stocks over a certain span of time.
Here are some dos:

?Buy stocks which have had consistent and predictable earnings growth.
?Buy stocks whose growth rate is higher than the total inflation and interest rates.
?Use stop-loss order to limit your risks.