We all know what is the importance to invest money in the right place to increase wealth. Stock market investment is one such good option that has rewarded high returns over the years to invester. However, to grow the maximum out of a financial instrument, it is necrssary to know about its workings.Well I am trying to the basics and learn how the stock market works in India.
Instrument of the Stock Market
The stock market is a place where investors trade in shares, bonds, and derivatives. This trading is done by stock exchanges, which can be thought of as markets that connect buyers and sellers. Four participants are involved in the trading of shares in the Indian stock market.
1. Securities and Exchange Board of India (SEBI): SEBI is the regulator of stock markets in India and ensures that securities markets in India work in order. SEBI lays down regulatory frameworks were exchanges, companies, brokerages, and other participants have to abide by to protect investors’ interests.
2. Stock exchanges: The stock market is a place where investors trade in shares, bonds, and derivatives. This trading is done by stock exchanges.In India, there are two primary stock exchanges on which companies are listed.
- Bombay Stock Exchange (BSE) – Sensex is its index
- National Stock Exchange (NSE) – Nifty is its Index
3. Stock brokers/brokerages: A broker is an intermediary ( person or a firm) that executes buy and sell orders for investors in return of a fee or a commission.
4. Investors and traders: Stocks are units of a company’s market value. Investors are individuals who purchase stocks to become part owners in the company. Trading involves buying or selling this equity. To understand how to share market works
The next is to learn about primary and secondary markets.
1. Primary Markets
The primary stock market provides an opportunity to issuers of stocks, especially corporates, to raise resources to meet their investment requirements and discharge some obligations and liabilities.
A company lists its shares in the primary market through an Initial Public Offering or IPO. Through an IPO, a company sells its shares for the first time to the public. An IPO opens for a particular period. Within this window, investors can bid for the shares and buy them at the issue price announced by the company.
Once the subscription period is over, the shares are allotted to the bidders. The companies are then called public because they have given out their shares to the common public.
For this, companies need to pay a fee to the stock exchanges. They are also required to provide all important details of the company’s financial information.
2. Secondary Market
The last step involves listing the company on the stock market, which means that the stock issued during the IPO can now freely be bought and sold. The secondary stock market is where shares of a company are traded after being initially offered to the public in the primary market. It is a market where buyers and sellers meet directly
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