What is Stock Market and How Does it Work?

Stock market is a place where shares of a listed companies are bought and sold. Think about having a share of your preferred company, this is what you get when you purchase its stock. Companies raise funds for growth through the stock market while investors seek to gain from rising share prices. This is like one big marketplace that comprises different players such as investors, corporations and regulators. When you understand how it works, you can make informed decisions on investment and wealth creation in the long run. This article will give you an idea about the basics of the stock market and its working mechanism.

What is the Stock Market?  

A share market or equity market, which has limited trading hours per day, is a public market for the trading of company stock at agreed prices. Sometimes, they are used interchangeably. However, while the former deals exclusively in equity shares, the latter permits trading with other financial instruments, unlike options futures, forward contracts for differences (CFDs) etc. The major exchanges in India are the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

open interests

How to Trade in the Stock Market

Stock trading is the purchase and sale of shares (ownership stakes in companies) to gain profit. This is a short description of how you can begin:

Selecting A Broker

Choose a reliable broker like Bigul that suits your needs and charges reasonable fees.

Open Your Demat and Trading Account

Open your free Demat and trading account by submitting required documents as per SEBI norms.

Develop Strategy

You must decide whether you prefer long-term investments (buy & hold) or short-term trading (quickly buying and selling).

Research

Evaluate stocks based on fundamental analysis (such as financial health, earnings, etc.) plus technical analysis (for instance price, trend patterns).

Risk Control

Protect your investment against huge losses using stop-loss orders and diversification.

Monitor Investments

Review your portfolio’s performance & stay abreast with market news and developments.

Place Trades

Use research findings as well as the strategy chosen to make purchases or sales orders for shares.

Review and Adjust

Examine holdings regularly, assess trade strategies, and make modifications when necessary.

Types of Share Markets

The share Market forms an important component of the Indian financial system, contributing towards capital formation and economic development. The Indian share market consists mainly of two types:


1. Primary Market

Primary markets exist when securities are issued by companies to the public at large as a way of raising finances for their operations. These may include stocks, bonds or any other financial instrument being sold for the first time ever. IPOs or Initial Public Offerings, when a company sells its shares to the general public for the first time, and FPOs or Follow-On Public Offerings wherein more shares are issued by already public companies take place here. Other than these, there are private placements and rights issues that provide specific selected investors or existing shareholders with shares at discounted rates. Businesses leverage primary market proceeds to expand operations.

 

2. Secondary Market

It is the secondary market where existing securities in stocks and bonds are traded by investors after their issuance in the primary market. Such markets include Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) among other markets in India where securities are bought and sold between investors thereby creating liquidity. Buying and selling determine prices of stock or bond issues on these Bourses. Besides major exchanges like BSE and NSE, there is OTC trading also wherein non-listed securities are traded on a bilateral basis. It serves as a vital platform for discovering prices while at the same time enables investors to buy or sell shares without necessarily transacting with the issuing company.

How Does the Stock Market Work?

Stock market is a place where companies dispose of some parts of their ownership to shareholders. The buyers can then resell their shares amongst each other. The process operates as follows:


1. Going Public (IPO)

A firm conducts an IPO by which they offer their shares in exchange for funds through listing them in a stock exchange.

2. Bid-Ask Spread

It involve bids and offers to buy or sell shares, where a bid represents what a buyer is willing to pay while an offer represents the seller’s acceptable price. Trading occurs when the asking price matches the bid price.

3. Interplay between supply and demand

The prices of stocks are determined by how much they are demanded for or supplied. It goes up if more people want to buy than sell a share. Stock prices can also be influenced by other factors including financial performance, economic conditions, changes in demand etc.

Conclusion

To make informed financial decisions one has to understand stock markets. Whether you are new to investing or have been doing it for years it pays off well if you know about trading in stocks and their associated risks so that you can navigate through this complicated environment confidently.

Online share trading app

Download Bigul Trading App!

Supercharge your trading on the go with the Bigul Trading App! Download now for instant access to cutting-edge features, real-time insights, and unparalleled convenience.

Subscribe now to get
latest market updates

Close

Let's Open Free Demat Account