How Stock Market Works in India…!!

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How Stock Market Works

An investor who trades in securities is aware of the stock market. A stock market is a place where investors trade in financial instruments like shares, bonds, derivatives as well as commodities. The stock exchange works as a facilitator of this transaction and enables them buying and selling of shares. There are primarily two stock exchanges in India, BSE and NSE. A company first lists itself in the primary market and then in the secondary market. Investors can buy and sell shares during an initial public offering.   

Working of the Stock Market:  

The stock market working is simple. Trading of financial product is done through stock exchange, which act as a platform. All the concerned parties such as companies (listing their shares), brokers, traders and investors must register with SEBI and the respective exchange (such as BSE, NSE or Regional Exchange) before trading. Let’s look at the working mechanism of the Stock Market:   

  • First, the company files a draft offer document with SEBI. It comprises of all the relevant information about the company, such as shares being diluted, price band and other details.  
  • On approval, the company offers its shares to the investor through an IPO on the market.  
  • The company issues and allot shares to some or all investors who bid through IPO.  
  • Further, the shares are then listed on the stock market to enable trading.  
  • In case, if the investors are failed to receive allotment during the IPO, then they can buy the shares on the secondary market.  
  • Those broking agencies registered with SEBI act as intermediaries between the investors and the Indian stock market.  
  • After receiving instructions from the clients, brokers place their orders on the market.  
  • After the matching of the buyer and seller at the price, the trade is successfully executed.  
  • Further confirmation will be sent to both the buyer and seller from the stock exchange.  
  • It happens, when an order is placed by brokers on behalf of their clients on the exchange.  
  • There are several parties involved in the entire processing, the executed trades are settled, which is the process where the buyer receives the shares and sellers receive their funds.  
  • They settle the trades when the buyer receives the shares and sellers receive their funds.  

How the Stock Market Price is Determined:  

The stock market works according to the free market economy i.e. Supply and Demand. The changes in the price reflect supply and demand, which depend upon the recent financial quarter, a strong industry sector or the situation of the stock market whether its showing bull or bear trends.  

*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing 

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