What is the Stock Market?
The stock market is a set of exchanges. These are the public stock exchanges that facilitate investors to buy and sell shares of companies and other financial securities like bonds, stocks, commodities, currencies, derivatives, etc. Stock Exchanges can be national-level stock exchanges or regional-level stock exchanges. Companies can issue their shares in the primary market and list them on stock exchanges. Companies list them for trade in the secondary stock market. The stock market also includes an over-the-counter (OTC) market where buyers and sellers trade unlisted securities without the intervention of SEBI. The Indian stock market is regulated by the SEBI (Securities Exchange Board of India) under specified sets of regulations for all financial instruments.
Aims of the Stock Market
Stock markets serve two significant pursuits.
- The first is capital access by companies to fund their business operations or expansion. Companies prefer stock issues to borrow the capital from the financial market to avoid debt and interest charges on it. After issuing their shares, private companies get the status of publicly-traded companies.
- The second is profit-making by investors with the act of investing and trading. Using their free demat account along with free trading account, investors can trade stocks with profit opportunities. Some stocks pay regular dividends to stockholders, or investors can make profits by buying stocks at a lower price and selling them at a higher price for a profit. It is the case when the stock price increases.
Suppose a company issues ten lakh shares @Rs.100 a share. You can trade these shares on stock exchanges and before listing on the OTC market. The company will be able to raise huge funds to operate or expand the business, and investors can make profits.
Suppose an investor buys stocks at Rs.100 per share, and the share price increases to Rs.115 a share. The investor can then realise a 15% profit by selling them.
Every market participant should know that the stock market investments carry huge risks. They need to approach the market in a disciplined manner to make profits and build wealth in the loan run.
Let us understand the components of the stock market.
Stock Exchanges
Stock exchanges are authorised platforms operating online for online trading. These platforms connect buyers and sellers intended to buy or sell financial securities in the stock markets. These can be stocks, bonds, derivatives, mutual funds, commodities, etc.
Stock exchanges aid in the transparency in share pricing and are necessary for fair dealings in the stock market. Market participants can access data about stocks and other financial securities to decide on trading orders on their indexes. They have their clearinghouses to finalise trade transactions securely.
In India, the stock market is operated through many National and regional stock exchanges. Primarily, each company gets listed on the BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) to offer their shares to the public for online trading.
Stock Brokers
Investors need to know about demat account opening process along with trading account to trade on stock exchanges. These are the accounts with the stockbrokers. Stockbrokers are members of stock exchanges. You need your demat account to keep your investments safe in the stock market and a trading account to place a trade order in the stock market. No person can access the stock exchange directly. Therefore, they need a demat and trading account with a SEBI-registered broker. Open a free trading account with a subscription-based brokerage plan with a discount broker. Only SEBI and exchange-registered members can connect with them and provide trading facilities.
This way, the stock market determines the processing of the free-market economy. There is a price mechanism that ensures investors’ protection. Access the market and trade online in the comfort of your home.
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