How the Stock Market Works in India

Many people get ready to dive into the Stock Market to carve out a successful financial journey for themselves. Prior to putting your money, doesn’t it make sense, to develop a sound understanding of the Stock Market. To emerge as a successful investor, one should know how the stock market works. There are a lot of things that go into the functioning of stock markets. Thus let us start by looking at the various participants in the stock market. 

Different Stock Market participants 

The stock market consists of 4 main contributors: Stock exchanges (like the NSE and BSE), investors or traders, stockbrokers and SEBI. 

1. Stock Exchanges

A stock exchange is a platform that conducts the buying and selling of financial instruments like shares and derivatives. Trading encompasses brokering, issuing of shares of the companies, etc. The two main stock exchanges in India through which the bulk of the country’s trade happens are (a) Bombay Stock Exchange (BSE) and (b) the National Stock Exchange (NSE). The BSE was st up in 1875 and the NSE, in 1992. NSE commenced its operations in 1994. By the end of 2021, the BSE had more than 5,500 indexed firms,while the NSE had around 1,900 listed companies.

2. Stockbrokers:

Because of the huge number of investors and traders, it is hard to have them together at one place. So, to make trading possible, the  stockbrokers and brokerages enter the picture. Stockbrokers or brokerages are intermediary organisations which facilitate the purchase and sale of orders. In return for the services they charge a small commission. For instance, IIFL Securities is one such leading brokerage house in India providing all kinds of financial services.

3. Investors:

Companies issue their shares which gives certain ownership in a company. Those who buy these shares become the investors in a particular company. Trading refers to buying and selling of shares.  

4. The market regulator:

The regulation along with the supervision of the stock markets in India lies with an government body known as Securities and Exchange Board of India (SEBI). SEBI came into existence as a result of the SEBI Act of 1992. It is an impartial organisation and has the authority to  inspect the stock exchanges, companies, brokers and all other market participants. The inspections properly examine the operations of each of the market participants to assess their administrative practices.  

The foremost role of SEBI consists of making sure an equitable financial environment for investors in the stock market. It lays down and implements the guidelines and instructions  and checks if the stock exchanges and different market members adhere to all the rules.

The Markets

Two types of markets exist:

Primary market –  This is where companies list themselves and go public. The investors can now buy shares of the company. Companies raise finance by offering a percentage of their shares to the public. When an organisation lists itself in the stock market, it’s referred to as an Initial Public Offering (IPO). 

Secondary market – After listing a company in the stock exchange the real buying and selling of its stocks takes place. This is the secondary market .The buyers can buy or sell the stocks via a broker. In this digital world, you could without difficulty open a Demat Account and a Trading Account with brokers like IIFL Securities, following which you can trade through their platforms easily.

How stock trading happens

Now that you are aware of the basics of the stock market, let’s see how the stock market works. We shall here find out how buying and selling of stocks takes place. Trading involves the following processes. 

Placement of orders

You specify the quantity of shares you wish to buy after offering your Trading and Demat Account info to the broker. The broking verifies that your account has enough price range to execute the change. Suppose you need to shop for a few stocks you can visit a good stockbroker’s platform like IIFL Securities and find the best stocks to buy today.

Passing of your order

The broker will directly hand over your purchase order directly to the stock exchange. wherein it’s matched for a sell order. The exchange occurs if the buyer and the seller agree on the pricing of the shares. This confirms the order.

Settlement

After confirmation of an order the  stock exchange switches possession of the stocks. This is Settlement. You obtain a message regarding this from the exchange. The Settlement time is T+2 days. So, if on trading today, you shall receive the shares in your Demat account in two days. 

Conclusion

We can say Indian share market work through a network of exchanges, clearing corporations and brokers. They work as a mediator between stock market investors and listed companies. There are also indices that represent stock markets. Nifty and Sensex are respectively the two prominent indices of NSE and BSE in India. You can trade by placing your “bid” which refers to the price an investor is willing to pay for the shares.This is usually lower than a seller’s “ask” price. However,we would recommend you seek professional assistance prior to investing. Visit IIFL Securities to browse the best stocks to buy today. You will find the appropriate price at which you should buy a stock. Investing with stock fundamental analysis can do wonders for you