scorecardresearchHow does the stock market work? MintGenie explains

How does the stock market work? MintGenie explains

Updated: 06 Jun 2022, 03:38 PM IST

Before you start making your first investment in the stock market, it is vital to know the tenets of stock market functioning. Read further to know them

A stock market is a platform where investors come to trade in shares, bonds, and derivatives.

A stock market is a platform where investors come to trade in shares, bonds, and derivatives.

Most of us aim to grow financially and be secure for the rest of the future. The most common way to do this is via investments. An investment generally directs towards the creation of an asset with a long-term goal to grow financially.

People tend to arm themselves with the fundamentals of knowledge around investment before making a foray into the stock markets. It is, undoubtedly, essential to know the basics of how the stock market works before investing in it.

What are the stock indices in India?

Firstly, we must be aware of the fact that India has two primary stock exchanges namely, National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). These are the two major destinations to carry out trading of stocks.

Further, there exists two different markets which are the primary market and secondary market. The primary market is the one where a company lists their shares for the first time which is also called the Initial Public Offering (IPO). Whereas, the secondary market allows the purchase and sale of the shares listed under IPO.

Role of SEBI in the stock markets of India

For a stock market to run, there are several participants who play an instrumental role in its functioning, which include investors, brokerage houses, companies and banks.

Since a lot of public money is involved, there is a need for a regulatory agency run by the government that can oversee the functioning of stock markets, and make sure that the companies do not resort to any illegitimate practice or misuse the public money. That agency is known as Securities Exchange Board of India (SEBI).

The regulator has complete control over the stock markets. For a company to list its share in the market, it must mandatorily get an approval from the SEBI. The process of getting the approval includes maintenance of proper checks and balances of the company’s accounting.

How are the stocks priced?

The stock prices are majorly dictated by the demand and supply factors. The price of particular stock changes in accordance with the demand of that stock. Having said this, the stock value can also be determined by the market value of a company irrespective of the demand for its stocks.

In a nutshell, this is the basic functioning process of the stock market one must be aware of before investing in it.

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First Published: 06 Jun 2022, 03:38 PM IST