What is stock market and how it works?

What is stock market?

Stock market is just like the other markets but here the stocks of the different companies are the only entity available for buying or selling. Here the bargaining takes place for the right price is also similar to our normal market and as soon as the buyers and sellers are agreed on the same price trade gets executed.

How it works?

Stock Market has got two parts :

1. Primary Market

2. Secondary Market

Primary Market:

IPO (Initial Public Offering): In IPO company issues its stocks to the public very first time at a certain price. It has got two types

Fixed Price: Here the stock price is already offered
Book Building: Here offer price is given in the range of highest and lowest value, public is allowed to bid in that range and after evaluating it company decides the offer price and accordingly company either allots the shares to the people who have applied for it or returns their money. The individual who gets the shares of the company becomes the part owner of that company.

Secondary Market:

Once the share allotment is over the company gets listed with the stock exchange and here it enters the secondary market. Now depending on the company’s performance the buyers bids for the buying price and sellers offer the selling price as soon as it matches the trade gets executed. The movement in the prices of the security is totally depending on the demand/supply law.

Important institutions/organizations in the market:

Stock Exchange: This is the place where the stocks of the companies are listed and actual trading takes place. In short here the stock exchanges with the money hence it is called stock exchange.

Brokers: These are the intermediaries between buyers/sellers and the stock exchange. They are listed with the exchange whatever trade we want to put we have to do it through the brokers and as they provide us this service they charge us, which is called as brokerage.

Depository exchange: Now a days all the shares are stored in the electronic form and the place where this shares are hold is known as depository exchange. We can call it as a bank of securities; as per the instruction of the account holder it transfers the holding of the securities. It makes transaction easier and safe.

Depository Participant (DP): DP is an agent through which the Depository exchange interfaces with the investor. You will have your demat account with DP which will show your current stock holding and as you transact it gets updated.

Registrar and Transfer Agent (RTA): RTA keeps the records of all the shareholders of a particular company with all the details and it updates the database with the transactions takes place.