What is share market & How it works
"To understand how share market works it is important to understand the components of share market".
Stock market is a platform where investors invest in various financial instruments, including shares of companies, bonds, futures and derivatives.And a large number of traders buy & sell shares and trade them.
Irrespective of your choice of investment, the stock market is more than equipped to offer you the ideal instrument and immense opportunities to make profits.
The stock market is a component or a platform of a free-market economy. It allows companies to raise money by offering stock shares and corporate bonds and allows investors to participate in the financial achievements of the companies, make profits through capital gains, and earn income through dividends.
Before entering into market let's understand common aspects of market.
Primary share market: This is where companies or businesses register themselves and list for the first time. Companies enter the primary share market to raise funds by offering their stocks to the general public. When a company lists itself in the primary share market and offers to sell its shares for the first time, it is known as Initial Public Offering (IPO). Here, you must understand that shares are a physical representation of a small value of the company, and owning the shares means that you are a part-owner of the company in the proportion of the shares you hold.
Secondary share market: After the company lists in the primary market, the actual trading of a company’s shares occurs in the secondary share market. After a company’s shares are listed on a stock exchange, investors can trade, i.e., sell or purchase the shares through a broker. In the present digital age, you can easily open a Demat Account and a Trading Account, following which you can effectively trade in stock markets via broking platforms.
Who Regulates Stock Markets:
In every country there are exchange who control the share market of following country.
Like in US The Securities and Exchange Commission (SEC) is a U.S. government oversight agency responsible for regulating the securities markets and protecting investors. In india Securities and Exchange Board of India (SEBI) regulates the stock market, the stock exchanges and the Depositories Participants in India.
Who are stock broker and their work
Stockbrokers are financial intermediaries who enable investor and trader to buy and sell shares by providing the service of opening a Demat account and trading account.
For the service, they charge a small brokerage fee. Stockbrokers/brokerage firms are registered with exchanges and act as a link between the investor and stock markets.
What is stock market & stock exchange:
Both terms looking same but both are different. When we talk about stock exchange- the stock market comprises of multiple stock exchanges like BSE and NSE.
When people talk about how the stock market is performing, they mean the thousands of public companies listed on multiple stock exchanges. Generally, the stock market can be thought of as encompassing a very broad universe of bonds, mutual funds, exchange-traded funds (ETFs) and other securities beyond just stocks.
What is index in stock market
The stock market index track performance of a group of company that represents a particular industry or segment of the stock market, like the technology, energy and transportation sectors.
Generally in Indian market major indexes are:
Sensex: The Sensex is one of the oldest stock exchanges of India. It comprises total value of 30 stocks of companies which are listed on the BSE. Indeed, these stocks belong to the largest corporations in India and, thus, represent the Indian economy’s performance at large.
NIFTY 50: The NIFTY 50 is the flagship index of the National Stock Exchange and one of the most recognized stock market indexes of India. It tracks the total of 50 stocks of huge companies related to various sectors and industries. The NIFTY 50 based stocks are all large-cap oriented companies which form almost three-fourth of the total capitalization in India.
BANK NIFTY: This index comprises of all major Banks in india. It tracks performance of banks that are listed on NSE, like SBI, HDFC, AXIS BANK, ICICI BAK, KOTAK BANK ETC.
Understanding the pricing mechanism in the stock market:
the stock market works on the bid-ask spread. ‘Bid’ refers to the price that buyers are willing to pay for an underlying, which is often less than the ‘ask’ price of the seller. The difference between the two prices is called the bid-ask spread. The buyer needs to increase the bid price and the seller needs to reduce the ask price for a trade to happen.
After the company shares listed on exchange they started trading price of shares move up and down by supply and demand of that shares on exchange. If there is demand for shares than price will go up and if supply is more than demands of share price go down. Thus price go up-down of shares
Why company need to list share on exchange
Companies needs more money when a company expand his business. At such time, companies approach the share market to offer a certain number of shares based on their company market value that investors can purchase. Investors pay some money to company and in return they get shares of that company and became a part of company.
When price of shares increase than value of money increase of investor and investor make good profit by selling those share to company.
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