What is Stock Market

From far away when you try to figure out that, what the stock market is? Probably you would get the answers like “It’s a gamble”, ” It is a place where people bet money and then eventually lose” etc. These would be the answers from the people who are also standing at the same distance as you – very far.

So, today we’re gonna answer this question by going very near to the topics which will completely solve our query.

What is the Stock market?

It is a marketplace where the shares of public listed companies are traded.

Not only the shares of the company, here along with the stocks other financial instruments like bonds, derivatives and mutual funds also get traded.
More precisely you can say,
Share market is a place where the securities of the listed companies are traded.

Don’t get confused when you come across the terms like share market or equity market because these both are the synonyms of the word, stock market.

Types of stock market

You better know that the stock market is a subtype of the financial market. But now we’re gonna discuss the further categorisation of the share market.

The share market can be categorized into two types:

1. Primary Market

When a company wants to raise capital from the general public, through IPO or FPO, then it issues its shares in the primary market and raises the funds.

In the primary market, transactions of shares and money occur between the company and the investors, where the issuing company is generally called the ‘issuer’.

As the company issues the new securities, the primary market is also known as the “new issue market“.

2. Secondary Market

The issued shares are traded here between the investors which means that the transaction occurs between an investor and the other investor.

The other name for the secondary market is “aftermarket“.

Who regulates the share market?

The Stock Exchange Board of India (SEBI) is the regulator of the stock market.

As a regulatory body rules and the regulation which the SEBI creates, have the intent to save the investors from fraud companies.

SEBI is a statutory body that was established in 1992 by the provisions of the SEBI Act,1992

Stock Market Participants

Here, from the word “stock market participants” we mean the entities which are the subsidiaries of the equity market and help the investors to complete the trade.

Mainly we’ve 3 participants:

1. Stock Exchanges

Exchanges are the infrastructures or the buildings where the shares of the companies get listed after their IPO.

Many people get confused between the term “stock market” and the “stock exchange”.For better understanding keep in mind that the exchange is a part of the share market and all the stock exchanges of the country altogether form the stock market of that country.

Based on the region/area, stock exchanges in India can be categorized into two categories:

1.1 Nation-wide Stock Exchange

These are the main exchanges on which the most trading is done by the investors and traders all over India. We’ve 2 nationwide stock exchanges which are…

BSE
  • Bombay Stock Exchange is the oldest stock exchange in India as well as in Asia.
  • More than 5400 companies are listed on it.
  • Sensex is the BSE’s Index.
  • Its location is in Mumbai.

NSE
  • NSE stands for National Stock Exchange.
  • Around 2000 companies are listed on NSE.
  • Its stock index is Nifty
  • It is also in Mumbai. (But many people think of its location as Delhi as it has the word “National” in its name).

1.2 Regional Stock Exchange

Exchanges of the states are referred to as regional.

There used to be 21 regional stock exchanges in India but after the SEBI tightened its rules and regulations and now there is only 1 regional stock exchange left that is active and it is…

CSE
  • Calcutta Stock Exchange is the second oldest stock exchange in India and Asia.
  • Approximately 2700 companies are listed on CSE.
  • CSE 40 is the Index.
  • Location: Kolkata.

The other 20 non-active regional stock exchanges which have shut down are:

  1. Ahmadabad Stock Exchange
  2. Delhi Stock Exchange
  3. Guwahati Stock Exchange
  4. Jaipur Stock Exchange
  5. Madhya Pradesh Stock Exchange
  6. Madras Stock Exchange
  7. Pune Stock Exchange
  8. Vadodara Stock Exchange
  9. Bangalore Stock Exchange
  10. OTC Exchange of India
  11. Inter-connected Stock Exchange of India
  12. Cochin Stock Exchange
  13. Ludhiana Stock Exchange
  14. Bhubaneshwar Stock Exchange
  15. Coimbatore Stock Exchange
  16. Magadh Stock Exchange
  17. Trivandrum Stock Exchange
  18. Mangalore Stock Exchange
  19. Hyderabad Stock Exchange
  20. UP Stock Exchange

2. Depositories

You open your bank account with a bank to deposit your savings or money. In the same manner, when you start trading and enter the stock market, you open your Demat account with a depository so that your shares, which you’ll trade in the future, will get stored or deposited in the Demat account.

So, a depository is an institution or an entity that holds your securities in demat form.

Responsibilities of a depository are:

  • To convert physical shares to dematerialized shares.
  • Transferring of shares from seller’s demat account to buyers demat account.

We’ve 2 depositories in India which are the following:

CDSL

  • CDSL stands for “Central Depository Services Limited”.
  • It works for BSE.
  • Location: Mumbai

NSDL

  • NSDL stands for “National Securities Depository Limited”.
  • Works for NSE.
  • Location: Mumbai

3. Clearing Corporations

These are the entities whose primary work is to keep an eye on the handling of confirmation, settlement, and delivery of transactions.

As the depository’s responsibility is to check whether the shares from the seller’s account get transferred to the buyer’s account or not. A clearing corporation makes sure that the buyer pays the money for those shares to the seller.

Generally, clearing corporations are known as “Clearing Houses” or “Clearing Firms”.

In India, we’ve 2 clearing houses which are:

ICCL

  • ICCL stands for “Indian Clearing Corporation Limited”.
  • Clearinghouse of BSE.
  • Located in Mumbai

NSE Clearing ltd.

  • Formerly it was known as “NSCCL” (National Securities Clearing Corporation Limited).
  • Subsidiary of NSE
  • Situated in Mumbai

Phases of Market

1. Bull Market

When the market seems optimistic, we call it the bull phase where the prices of the stocks rise or are expected to rise over some time.

For instance, If a stable govt. comes into a country after winning the majority of the seats in the elections you may see the bull run in the share market.

2. Bear Market

When the share prices start to fall over sometimes, this phase of the market is known as the bearish phase where investors trade with pessimism.

For instance, when coronavirus was spreading and then became a global pandemic the stock markets all over the world faced a bearish phase.

Purpose of Share Market

We read and learned so much about the stock market till this point, but why do we need a share market at all?

We need the stock market as it serves two very important purposes which are…

  • It acts as a platform for companies to raise capital to expand their businesses.
  • It is the medium through which the general public can become the part-owner of the profit, which the companies make by doing business, by investing in their shares.

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