What is stock market?
In its simplest sense, stock market or equity market is a trading place where people buy or sell shares, other securities or derivatives of public limited companies or limited companies. Further, it is a place where public guesses the movement in prices of shares and would try to make profit by selling or buying. In reality, this definition of stock market does not tell the real underlying phenomenon on why people trade shares.
In the first place the stock market is a virtual place where people exchange securities which companies float for raising funding for running or expansion of their companies in the form of shares or debentures or both. Sometimes virtual form of instruments that relate them to companies’ assets and fundamentals are also traded. All these products are intangible and the only physical form it can display is the share certificate either in paper form (in earlier days) and now mostly seen dematerialised form or popularly known as “demat” form held in your trading account. One of finest feature of the stock market is that it is a place where you would be able to find from small investors, trying to speculate stock prices for profitability, to specially floated finance companies and mutual funds managers risking large capital assets for making money.
How shares and securities reach stock market and why people trade them?
The public limited companies or limited companies float public issues of “shares” for raising capital for the company’s expansions and other internal needs. To commensurate with its literal meaning a share is part ownership of company where a share holder acquires rights to share distributable profits in the form of annual dividend and most importantly in the decision making process through voting rights at annual general body meetings of the share holders to managing the company. These primary characteristics underlying the “share” make it a prize possession and engage people in buying or selling of shares. After raising the share capital from the initial public offering of shares, the companies approach the stock market for their listing in the stock exchange for trading of its shares in the stock market. Depending the company’s fundamentals the share price of the its stock gets fixed initially and from then on its share price moves up and down depending on the demand and the supply or the buying and selling pressures the investors face. In a nut shell, the share price of a company is an amalgamation of various aspects about the company and trends of the investors. However, the day to day functioning of the company or the annual performance of the company does not depend on its share value although indirectly shows the health of the company.
Global acceptance of stock markets
Another important aspect of stock markets is that its global acceptance. The facility created for the companies to go global for rising of finances have made companies to get listed across all the stock exchanges of the world. Although stock markets trading hours are dictated by the local working hours of the country, global listing of the company makes trading possible all through the day starting from Toyko stock exchange to New York stock exchange. This is another basic principle that is making stock market a biggest trading place for public and alike.
Indian stock markets
There are two major stock exchanges in India for transacting shares, securities, commodities, derivatives and even gold UTFs. They are “National Stock Exchange or NSE” and “Bombay Stock Exchange (BSE)”. Originally, the trading used to be conducted on open shouting or outcry basis wherein the assembled brokers at the stock exchange used to transact with each other. The system was slowly replaced with the computer’s connectivity and secured online transactions. Today three-in-one trading accounts are available to the small investors which connect the investors trading account with their bank accounts to transact stock trading online. All the major nationalised banks offer demat accounts and trading facilities. All the online trading is now connected to national stock exchange. The traders can also transact offline.
The stock trading is always associated with risks and there were instances in the past where stock markets were rigged leading to heavy losses for across the spectrum investors. Government of India and finance ministry have evolved several guidelines and controls in the form of statutory bodies like Securities Exchange Board of India.