Looking to understand all about what is stock market? Here is your answer. The stock market is an established organisation wherein investors connect to buy and sell companies- these companies are listed in the stock exchange. When you purchase a particular company stock by default, you become a shareowner of the company. The companies range from small to mid to large capital share, so you have an array of companies and prices to choose.
This article will take you through the depths of the stock market and the spectrum of terminologies with their explanations, so you will get a better understanding to dabble in the stock market.
To begin with, the Stock Exchange in India are two that is the Bombay Stock Exchange -BSE where the trading of companies initially began and later the National Stock Exchange -NSE was incorporated with automated systems in place. Today both these exchanges dominate the Indian stock market, without which you cannot buy and sell shares. They are the premier stock exchanges of India. The stock exchange meaning is relatively straightforward; wherein once new securities are traded that is sold in the primary market, are then traded in the secondary market, where investors buy and sell shares from one another at the prevailing market price. There is a regulatory authority that monitors and manages the stock exchanges. In India, both the primary and secondary markets are governed by the Security and Exchange Board of India- SEBI. We’ll come to the insight of the primary and secondary market in just a bit.
What is Share Market
By definition, it is a market place where trading of shares of public listed companies is carried out daily. The primary market is where the companies float the shares to the public; the extending of shares in the open market is known as Initial Public Offering- IPO, mainly for market capitalisation. Some stockbrokers are registered with the stock exchanges, to trade company stocks and other types of securities. A share may be bought or sold only once listed on the stock exchange. Thus, the share market meaning is a place where buyers and sellers come together only for trading stocks.
Why Get Listed
Since you know what is stock exchange meaning, next we’ll move on to why companies want to offer their shares in the stock exchange or the terminology of the market users, get listed on the share market.
Companies irrespective of their business size strategies and list themselves on the stock exchanges to raise money that is to increase their company capital value. There are many goals for such a purpose; it could be as simple as company expansion, purchase of machinery, this is mainly applicable for manufacturing companies, the buildup of capital is for various reasons best known to the company. Thus, when a company gets listed and the public purchases their shares, the money is utilised to build the company’s business.
Advantages of Stock Market
Suitable for Expansion: The sale of company stocks creates dependable and stable long-term financial growth. Companies can use these proceeds for business expansion and development.
Easy Entry and Exit: The stock market enables effortless entry and exit through the purchase and sale of shares of any company at a price regulated by the demand and supply of that share.
Regulated Processes: A haven for the investors as the stock exchanges and market regulators require the listed companies to adhere to stringent disclosures and regulatory requirements. It does not leave behind the stockbrokers who have to tread the path set out by SEBI.
Secure Clearing Mechanism: The stock exchanges assure the investors of a reliable and secure clearing mechanism on purchase of stocks that will be delivered to them through their Demat Account.
These advantages enhance the stock exchange meaning further.
Moving forward, we have curated some common terminologies for you for a better and straightforward understanding of what is stock market and how it functions.
Capital: Capital is the term that comprises of wealth in the form of money, assets or investments owned by the organisation or its promoter. The capital of the company or market capitalisation
enables the company or its promoter to enhance and expand their business.
Primary Market:
The primary market is where the company share is issued to the investor that is the public to purchase their shares for the very first time. The primary market is identical to the Initial Public Offering, that is IPO.
Secondary Market:
The secondary market refers to the market wherein trading of securities are traded after being primarily offered to the public in the primary market and listed on the stock exchange. Essentially trading stocks is carried out through the secondary market. It is what people refer to when they discuss about stock markets.Working of the Stock Market:
The stock market operates on a simple mechanism through an online platform. Here we highlight the main elements of the share market.
Participants: The participants include SEBI, the stock exchanges that is BSE and NSE, the stockbrokers, the traders these are classified as daily traders and long term traders and the investors. Do note the investors, also known as traders, need to set up a Demat and Trading Account before they begin their trading journey.
IPO: The initial requirement for the company to be listed in the stock exchange is to file a draft offer document with SEBI. With specific details and regulatory norms in place, on approval, the company offers its shares to the investors through an IPO in the primary market.
Distribution: This stages the company issues and allots the shares to the investors who had applied during the IPO. It is a computerised process; hence not all the investors would get lucky. The shares are then listed in the share market, and the investor has the option to sell his newly allotted shares, and another investor has the opportunity to buy these shares through the share market.
Stock Brokers: The intermediary or the middlemen as you would like to call them are individuals or broking agencies registered with SEBI and the Stock Exchanges that assist the investor in buying and selling shares through the stock market. Your Demat and trading account is set up with your stock broker who executes the deal for you, upon confirmation of your order the stockbroker sends you the contract cum transaction bill report.
Order Processing: This is the final step when the broker places an order or trade on behalf of the investor on the specific exchange. The executed trade order is settled, which is the process where the buyer receives the shares and sellers receive their monies. The time frame for settlement of the order is T+2 where the payment should be concluded within two working days from the day of the transaction.
With an in-depth understanding of what is stock market to its advantages to the necessary process of placing an order, this article walks you through the basics you require to begin investing in the stock market. Make the most of this investing stream and reap the benefits for the long run.
To opt for Demat Account opening with HDFC Bank, click here.
Read more on the benefits of a Demat Account here.
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
