The stock market refers to a place where companies put up their stocks to be bought and sold or traded. It is a place, mostly online, but can be physical, where shares representing the partial ownership of companies are traded. The stock market, via which companies trade their stock, is where the same companies raise capital. Stock markets are very important as they are used as key indicators of any economy’s health. Once you open a Demat account and a trading account with a depository participant (a broker or a bank), you can start trading on the stock market.
Dive Deeper into the Stock Market
In the broadest sense of the term, a stock market is a set of exchanges where the stock (shares) of publicly held companies are traded (purchased and sold). The stock market is an important place for many reasons, the main ones of which are listed below:
- Companies use stock markets to raise capital, either to expand their business operations, start a business, or pay their debts.
- A stock market comprises a consolidated network in which stocks and derivatives are transacted.
- Companies that are listed on stock exchanges are public companies. This means that their shares are open to be bought and sold by the general public. Furthermore, public companies are prone to several transparency and reporting regulations.
- The stocks and shares on a stock exchange are sold and bought by high-net-worth individuals and different institutional investors but are also accessible to retail investors and any individuals looking to generate some income.
- The Securities and Exchange Board of India (SEBI) is the chief regulator of securities markets in India, with its stated objective “to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”.
- You can use an online trading app for stock market.
- The price of stocks may fluctuate depending on many factors including the state of the economy, media releases, demand and supply, and other factors that may not appear rational (such as ‘investor sentiment’). Nonetheless, all these factors must be considered if you are trading in the stock market.
How Does the Stock Market Work?
People buy and sell shares in the stock market for a number of reasons. Some use a buy-and-hold strategy, waiting for prices to increase and potentially wishing to sell shares at a profit. Others may want smaller but faster profits. The terms “stock market” and “stock exchange” are commonly used interchangeably, but it is important to note that these aren’t the same. Traders and investors buy and sell shares on one or more stock exchanges, which are components of the overall broader stock market. Furthermore, you should grasp that the stock market plays a vital role in all modern economies as it facilitates the movement of capital between companies and investors.
You may have some clue as to how a stock market works, but some details about a stock market may make you understand its operations better. First, not every company can offer its stock to the public. Only public companies, those that have made an initial public offering (IPO) can have their shares bought and sold on exchanges in the stock market (in India, the predominant exchanges are the National Stock Exchange – NSE and the Bombay Stock Exchange – BSE). The stocks traded on stock exchanges in the stock market are said to be traded in the secondary markets.
Stocks and Stock Exchanges
As an investor or a trader, you can buy shares of a company (its stock) off the stock exchange. Once you buy shares of a company, this means that you own a portion of the company (based on the amount of shares bought). Retail investors have access to the stock market through a registered broker who trades on their behalf. The broker acts as a Depository Participant that is authorised access to trade on stock exchanges on behalf of individual investors. These days, most trading and investing are done online through a trading app. Consequently, more people have access to the stock market than ever before, through online portals and devices like smartphones.
An Important Marketplace
The stock market is the place where company shares and other financial instruments are purchased and sold. Since several or a few exchanges make up the wider stock market of any economy, you could call it a network in which trading activity occurs. You may not be an investor who actively trades on any stock market but stock markets affect economies, domestically and globally.
