What is share market and how does it work?

By siliconindia  |  Friday, 30 July 2021, 06:53:15 PM IST

What is share market and how does it work?

Even if you are not a regular investor, the chances are that the share market must have caught your imagination at one point or the other. The share market in India has emerged as one of the most popular avenues of investment for both individual and institutional investors.

So, what is a share market?

The share market, also known as the stock market or equity market, is a financial market where shares of listed companies are issued, bought, and sold.

The share market comprises stock exchanges which work as facilitators in the trading of shares, bonds and derivatives. The share market works electronically through the internet and online stockbrokers.

A stock exchange is a centralised location where the shares of publicly traded companies are bought and sold.

What are the purposes of a share market?

The share market serves two important purposes: allowing companies to raise money from the public to fund and expand their businesses and enabling investors to own a publicly-listed company and earn profit.

How investors make money in the stock market?

Investors can earn profit from the stock market in two ways: from the rise in the stock price and from dividends that some stocks pay from time to time. Let us understand how. If you bought a share of a company at, let us say, at Rs 200 and if its price rises to Rs 250 after six months, you make a profit of 25 per cent if you sell it at this price.

Similarly, dividends are a source of profit for investors. Many companies listed on the stock market pay regular dividends either in cash or as additional shares of their stock. Dividends are a portion of a company’s profits which it distributes to its shareholders as a reward for loyalty. The more stocks you own, the more dividend you earn.

How the share market works?

Before you get access to a company’s shares to trade on the stock market, a company has to first go public in a process known as an initial public offering (IPO). This is the time when the stocks are created and sold for the first time. This happens in what is known as the primary market. The shares are then listed in the secondary market, what we commonly know as the stock market. It is here that the shares are made available to individual and institutional investors, who trade in large volumes, through their brokers.

After listing in the stock market, the price of a company’s shares move according to the rule of supply and demand. The more the demand, the higher the price goes and vice versa.

So, the stock market is a platform that brings together buyers and sellers to negotiate prices of shares and execute trades.

The trades are driven by investor’s hopes that stock prices will rise and give them profit.

How to start trading?

Trading in the stock market could be easier than you thought. Here’s how you can do it:

Select a broker

When you set out to invest in the stock market, the first thing you should do is select the broker. You will need the services of the online broker.

Open a Demat and a trading account

You need to have a Demat and a trading account to invest and trade in the Indian stock market. While the trading account is used to execute trades, the Demat account holds your securities.

Research and select your stock

Once your Demat and trading accounts are active, you should research well and pick the stocks you would like to trade. You can also take expert advice to make a choice.

Place an order

After picking a stock for trading and determining the direction of trade, you can go ahead and place your order. You should make it a point that your account is sufficiently funded so that the order is not rejected.

Share market in India

India has one of the world’s most advanced and developed stock markets.

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are among the world’s largest stock exchanges by market capitalization. While the BSE, considered to be the oldest stock market in Asia, has been in existence since 1875, the NSE was founded in 1992 and started trading in 1994. The NSE is larger than its peer in terms of volume. Although the two exchanges are fierce competitors, they have a lot in common when it comes to style of functioning. They follow the same trading mechanism, trading hours, and the trade settlement process.

Almost all important companies of India are listed on either of the two exchanges.

Who regulates the market in India?

The Securities and Exchange Board of India, popular as SEBI, regulates the Indian stock market. SEBI was established on April 12, 1992, as an independent authority. The SEBI is entrusted with the overall responsibility of regulating and supervising the stock market. It lays down the rules and frames guidelines, with the best market practices, to run the stock market. It protects the interests of small investors and ensures there is no manipulation in the markets. SEBI enjoys vast powers to impose penalties and take action against market participants, in case of a breach.

Disclaimer

ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  Investments in securities market are subject to market risks, read all the related documents carefully before investing. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents are solely for informational and educational purpose. The securities quoted are exemplary and are not recommendatory

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