How does the Stock Market work?

I hope you have read why you should invest in stocks, moving further we will know how stocks marketing works.
So let’s start, As you have understood the importance of investment, you must want to know how the stock market works?

Therefore we will get to know about it today.
It’s not much hard to understand how it works, just you can understand with an example of your local grocery shop to buy your necessary stuff, we go to the stock market to buy share/ stocks of any company.
The difference is that the stock market is not any building like a shop, but its a place where all investors and traders gather by online means to perform transactions i.e sell and buy shares of public companies like reliance, Wipro, etc.

Most important thing is to be noted that you can’t buy/sell any shares directly for any company.

 

There is two stock exchange in India namely:

1. NSE ( National Stock Exchange of India Limited)
2. BSE (Bombay Stock Exchange)

There are also additional stock exchanges like

  • Bangalore Stock Exchange
  • Madras Stock Exchange
  • Delhi Stock Exchange

however, at the national level, only National Stock Exchange  & Bombay Stock Exchange are present.

National Stock Exchange

The National Stock Exchange of India Limited (NSE) is India’s largest financial market. Incorporated in 1992, the NSE has expanded into a modern, electronic market, which ranked fourth in the world by equity trading volume and Trading commenced in 1994 with the launch of the wholesale debt market and a cash market segment shortly after that.

NSE is mostly involved in wholesale debt, equity, and derivative markets. Might you have heard about Nifty50?
Nifty50 is the index of the top 50 companies that represent the majority of the total capital of companies listed on NSE which shows the performance of 50 companies.

Bombay Stock Exchange

The BSE is an Indian stock exchange located at Dalal 
Street, Mumbai, formerly known as the Bombay Stock Exchange Ltd. 
It was founded in 1875 and is the oldest stock exchange in Asia. 
As of April 2018, the BSE is the 10th largest stock exchange in 
the world with total market capitalization of over US$ 2.2 trillion on.
BSE is also the member exchange of the United Nations Sustainable Stock Exchange initiative, 
which joined in September 2012 
On 30 December 2016, BSE founded India INX. 
India INX is India’s first foreign exchange.
BSE launches deal for commodity derivatives in gold, silver

Let’s know about participants and regulators

  1. Domestic Retail Participants – These are people like you and me performing transactions (buy and sell) in the market i.e stock market.
  2. Domestic Asset Management Companies (AMC) – Typical participants in this category would be the mutual fund companies, for example, SBI Mutual Fund, DSP Black Rock, Fidelity Investments, HDFC AMC, Motilal Oswal s&p100, Aditya Birla index fund, and many more.
  3. The Domestic Institutions – These are large corporate entities based in India. A classic example would be the LIC of India.
  4. Foreign Institutional Investors – Non-Indian people and corporate entities. These could be foreign asset management companies, hedge funds, and other investors too.
  5. NRI and OCI – These are people of Indian origin but living outside of India.
  6. SEBI stands for The Securities and Exchange Board of India. It is a regulator for the Indian stock market and maintains different kinds of stuff like checking all participants and brokers are working properly and fairly.

You must be wondering who is a broker?

So let’s learn about it.

A broker is someone who has the right to give you a platform to buy and sell stocks/shares.
You must have to understand that you can’t go to NSE directly and ask for share to purchase it will create a burden on them so they maintained a system for this, some company comes to NSE and fulfill their eligibility to become a broker and become broker company. For example Zerodha, Groww, Motilal Oswal, and many more.
Brokers act like a shopkeeper who gives a platform for a company to send their products and he finds interested customers like you and me for them. As of result, many companies get into the broking field too.

Further brokers give you a way to connect with NSE or BSE so that you can perform transactions.
You must understand you can’t buy stocks directly you have to go with any broker.
There are more than a thousand brokers and they charge different brokerage which we will learn in the next article because we want to make you a good investor as well as a good trader.

Summary :

As you have completed the above all article we can conclude you have learned about how stock market works, the below points will help you summarise:-

  1. The stock market is the place to visit if you want to sell/buy in stocks
  2. Stock markets exist electronically and we can only access these through a stockbroker.
  3. There are many different kinds of market participants operating in the stock markets like you, me, NRI foreign investors
  4. Every entity operating in the market must be regulated by the regulator which is SEBI in our case.
  5. SEBI is the regulator of the securities market in India. They set the legal framework and regulate all entities in operating in the market.
  6. Most importantly we have to follow SEBI rules and regulations but if we violate we will be punished Under different SEBI acts as they know each and everything you are performing in the stock market.

 

Conclusion:

Don’t follow any illegal way to earn via stock market as this will result in a long term compact with stocks

To know more about the stock market and its operation follow Investo Lingo.

Shashi , Investo Lingo

Shashi (Prachi)

Shashi (Prachi)

Smile it let your teeth breath Equity Research Analyst at HDFC Mutual Fund ll Portfolio Management ll Wealth Management ll CFA Level 1 Candidate

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