The stock market is a venue for listing and trading shares of various businesses. Stock exchanges are the venues used for this trade. The Bombay Stock Exchange (BSE), National Stock Exchange (NSE), Metropolitan Stock Exchange (MSE), National Commodity and Derivatives Exchange, and Multi Commodity Exchange (MCX) are just a few of the stock markets in India.
Significance of Stock Market
You can invest in a variety of financial products on the stock market, such as shares, bonds, futures, and derivatives. Whatever investment you decide to make, the stock market is more than capable of providing you with the perfect tool and a wealth of profitable opportunities if you have the necessary skill and expertise to decipher market trends. In order to be better prepared to make the correct investment decisions, it is advisable to understand how the stock market operates before you start trading.
Examples Of Stock Market
In India, there are two main stock exchanges:
- Bombay Stock Exchange (BSE).
- National Stock Exchange of India Limited (NSE).
Stock Market Types
The stock market can be divided into 2 different categories, primary stock market and secondary stock market:
- The primary share market is where corporations and other legal entities register and list their shares for the first time. Companies sell their stocks to the public on the primary share market to raise money. An initial public offering (IPO) occurs when a firm lists itself on the main stock exchange and makes its shares available for sale for the first time (IPO). Here, you must comprehend that shares are a tangible representation of a small fraction of the company’s value and that having shares entitles you to a percentage of the company’s ownership based on the number of shares you own.
- The secondary share market refers to trade of shares between different investors, there is no direct offering of shares/instruments by the issuer in case of the secondary market. Following a company’s initial public offering (IPO), the secondary share market is where its shares are actually traded. Investors can trade, i.e., sell or buy, shares through a broker once a company’s shares are listed on a stock market. In the current digital era, opening a Demat Account and a Trading Account is simple.
Who Oversees The Indian Stock Markets?
The Indian stock market, stock exchanges, and depositories participants, and other stock market participants are governed by the Securities and Exchange Board of India (SEBI). In 1992, it was established by the SEBI Act. Along with having ultimate administrative control over the stock markets, SEBI is also tasked with conducting inspections and creating regulations to ensure the stock markets operate transparently.
What Do Stockbrokers Do?
Stockbrokers are financial intermediaries who offer the service of opening a trading account, allowing you to purchase and sell shares on the stock market. They charge a brokerage fee for the service. With SEBI registration, stockbrokers and brokerage firms serve as a conduit between investors and the stock markets.
How Does The Stock Market Work?
Before the internet, you had to personally visit brokers to give them instructions for transactions. However, stockbrokers now provide digital trading platforms via which you can trade in a matter of clicks thanks to a number of new digital technologies. Which are:
- Web-based trading platforms
- Computer software
- Mobile applications
How Does Real Trading Take Place?
You can use the trading platform to select a specific stock, specify the quantity of shares you want to purchase or sell, and then execute the transaction after opening a Demat Account and Trading Account. After you place the transaction, the broker confirms that you have the necessary funds in your account. Finally, if there is sufficient money, your order is carried out on the stock exchange. Your sell/buy order will be matched against an order when the price of the counter order matches the price you have quoted.
The transfer of share ownership is then officially confirmed by the exchange. Following that, you get a notification regarding the settlement, and within two working days, it appears in your demat account.
How Should I Assess a Stock?
Two methods for evaluating stocks are as follows:
- Technical analysis: The study of chart patterns, graphs, and diagrams displayed on a screen is known as technical analysis. Understanding price and volume trends will help you choose stocks more wisely. You examine a variety of variables in this case, including moving averages, the Relative Strength Index (RSI), etc.
- Fundamental analysis: This is the examination of the variables that account for the true value of a company. To get a clearer picture of stock prices, you can analyse various important variables here, such as returns on equity, earnings yield, profit margin, debt to equity ratio, interest cover ratio, market capitalization, etc.
How Are Returns on the Stock Market Calculated?
Two methods can often be used to estimate market returns:
- Methodology for Calculating Absolute Returns: In this case, returns are calculated using factors such as buying price, selling price, returns, and return percentage.
- Methodology for Compound Annual Growth: In this case, the returns are computed over the entire period. This methodology is preferred by market analysts over the absolute return methodology.
You can check out the performance of various stocks and live share price.
How To Invest In Stock Market
Investors in India must create a Demat account and a trading account in order to purchase and sell equities (DP). The Securities and Exchange Board of India (SEBI) actively monitors and controls the stock market. To control how the stock market operates, increase transparency, and safeguard investors’ interests, SEBI regulates various market participants. Investors are encouraged to take part in the stock market with confidence since it is a highly regulated investment arena. Many investors check-out the best-performing stock of a given day before making an investment decision, you can check-out top gainers today NSE at Kuvera.