What Is the Stock Market?
The term stock market refers to several exchanges in which shares of publicly held companies are bought and sold. Financial activities are conducted through formal exchanges that operate under a defined set of regulations.
Both “stock market” and “stock exchange” are frequently used interchangeably. Dealers in the stock market buy or sell shares on one or more stock exchanges that are part of the overall stock market.
Understanding the Stock Market
The stock market allows buyers and sellers of securities to meet and trade. The markets allow for price spotting for shares of corporates and serve as a measure for the overall economy. Buyers and sellers are assured of a fair price, high degree of liquidity, and transparency as market participators rival in the open market.
A stock market is a regulated and controlled medium. In India, the main regulator is Security and Exchange Board of India( SEBI)
Earlier stock markets issued and dealt in paper- based physical share instruments. now, stock markets operate
How the Stock Market Works
Stock markets deliver a secure and regulated atmosphere where market players can trade in shares and other financial instruments with confidence, with zero to low operational threat. Operating under the defined rules as stated by the regulator, the stock markets act as primary markets and secondary markets.
As a primary market, the stock market allows companies to issue and sell their shares to the public for the first time through the process of an initial public offering (IPO). This IPO helps companies raise necessary capital from investors.
A company divides itself into several shares and sells some of those shares to the public at a price per share.
To ease this process, a company needs a marketplace platform where these shares can be sold and this is because of the stock market. A listed company may also offer new, fresh shares through other offerings at a later stage, similar as through rights issues or follow- on offerings. They may even buy back or delist their shares.
Investors will enjoy company shares in the anticipation that share value will rise or that they will receive dividend payments or both. The stock exchange acts as a facilitator for this capital- raising process and receives a fee for its services from the company and its financial partners.
Using the stock exchanges, investors can also buy and sell securities they earlier possess in what’s called the secondary market.
The stock market or exchange maintains various market- level and sector-specific indexes , like NIFTY, SENSEX, BANKNIFTY.
What Are the Functions of a Stock Market?
The stock market ensures price transparency, liquidity, price discovery, and fair dealings in trading activities.
The stock market guarantees all interested market players have access to data for all buy and sell orders, thereby helping in the fair and transparent pricing of securities. The market also ensures effective matching of appropriate buy and sell orders.
Stock markets need to support price discovery where the price of any stock is determined inclusively by all of its buyers and sellers. Those good and willing to trade should get instant access to place orders and the request ensures that the orders are executed at a fair price.
Traders on the stock market include market makers, investors, traders, speculators, and hedgers. An investor may buy stocks and hold them for the long term, while a trader may enter and exit a position within seconds. A market maker provides necessary liquidity in the market, while a hedger may trade in derivatives.
How Stock Markets Are Regulated
Most nations have a stock market, and each is regulated by a local financial regulator or financial authority, or institute. The SEC is the nonsupervisory body charged with overseeing theU.S. stock market.
Companies listed on the stock market exchanges are regulated, and their dealings are monitored. In addition, the exchanges set certain conditions such as directing timely filing of quarterly fiscal reports and instant reporting of applicable corporate developments, to ensure that all market players are equally informed.
Failure to adhere to the regulations can lead to suspense of trading and other disciplinary measures.
What Is the Significance of the Stock Market?
The stock market is an element of a free- market economy. It allows companies to raise money by offering stock shares and corporate bonds and allows investors to participate in the fiscal achievements of the companies, make gains through capital earnings, and earn income through dividends. The stock market works as a platform through which savings and investments of individualities are efficiently conducted into productive investment opportunities and add to the capital formation and economic growth of the country.
Who Helps an Investor Trade on the Stock Market?
Stockbrokers act as intermediaries between the stock exchanges and the investors by buying and dealing stocks and portfolio managers are professionals who invest portfolios, or collections of securities, for clients. Investment bankers represent companies in various capacities, such as private companies that want to go public via an IPO or companies that are involved in pending mergers and acquisitions.
Example of stock brokers- Zerodha, Upstox, Angelone
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