In India, it is near impossible to go without hearing the words- shares, SENSEX, Nifty among others every day. You could be hearing about shares going up and down and about indices moving with volatility. You may know that these come from what you may know as the “Share Market” or the “Stock Market”, but if you’re curious about this, you must be looking for a lot of answers!
Source: businesstoday.in
So, firstly, a stock or a share is a representative of a share in the ownership of a company. The share market is where these shares are bought and sold, to make profits. The price at which a share is bought or sold is the share price and it happens to be very volatile and may even change from second to second! This share price is determined by the forces of supply and demand for the share in the market.
There are four important participants that constitute and create the market in India:
Investors & TradersBrokersStock ExchangesSEBI
First, when a Company wants to raise money in the market, it lists itself on the Stock Exchange by coming out with an Initial Public Offering (IPO). In its offer document, it lists details about the company, the stocks being issued, and so on. These shares are allotted to the highest bidders of the stock during listing. Once the company receives the money it wanted to raise, the shares are allotted to the investors. This allotment of shares is done in the “primary market”.
These investors, earn a dividend from the profits of the companies whose shares they own. But if an investor/shareholder wants to sell their share, they can do so by finding buyers of these shares in the “secondary market”.
The primary and secondary markets are basically virtual markets on Stock Exchanges. Stock Exchanges match the orders of the buyers and sellers and clear them for settlement. Stock Markets aren’t physical places anymore. The markets are created online since the exchanges today are fully electronic.
Source: Kotak® Securities
In the share market, sellers find buyers and vice versa to maximise profits or minimize losses. In India, millions of people trade every day, so how do sellers and buyers find each other to meet at the price and quantity to influence prices every second? This happens thanks to the brokers. Brokers are intermediaries who connect the individual investors to the stock exchange for the trade of their shares. When an order is submitted to the broker, the broker passes on the order to the exchange which then finds a complementary offer in terms of price. Once the order is matched, the exchange notifies the brokers of both the parties who then notify their clients.
Source: Groww
Today, if dealing in liquid securities (those that can be sold quickly without a kick-back in the price), an order can be matched within the blink of an eye! While matching an order, an exchange is also responsible for making sure that the parties don’t default on their share transfer and money transfer obligations. Traders now need to maintain a margin of money while placing an order, which is basically the minimum amount needed to execute the transaction.
The exchange then facilitates the actual transfer of ownership of shares and the money to respective parties. This process is known as settlement. In India, the exchanges are now fast enough and have adopted a T+2 days rolling settlement. What this basically means is that if you place an order today, you would receive your shares in your demat account by the end of 2 says, i.e. the day after tomorrow.
Many people believe that the Stock Market is equivalent to gambling but that is not so. The stock market, like any other market, works on the laws of demand and supply. For those that haven’t studied them, here are the basics:
● As demand for shares increases, the price increases
● As supply of shares increases, the price decreases
● If there are high volumes being traded, then price volatility is higher.
The Securities and Exchange Board of India (SEBI) is responsible for the development, regulation, and supervision of the stock market in India. It’s stated objective is: “to protect the interests of investors in securities and to promote the development of and to regulate the securities market and for matters connected therewith or incidental thereto.” SEBI drafts regulations and statutes in its legislative capacity pass rulings and orders in its judicial capacity and conduct investigations and enforcement actions.
If you too wish to get started with trading shares, you’ll have to make sure that you’re over 18 years of age, have a bank account and that you open a demat account, but ensure you keep the basic investors psychology in mind because greed and fear both can tilt your financial status completely! So, take the plunge, but take it carefully!
References:
コメント