What is the Stock Market and How It Works ? : Discover the Basics

SHARE MARKET is such a well which can quench everyone’s thirst. What I mean to say is that there is so much money in the share market that if you study a little of the share market and invest in it then you can get very good returns.

As we know SHARE MARKET is also called STOCK MARKET. This is such a place where people can buy or sell shares of companies. This blog will try to explore SHARE MARKET and provide a guide to you about it.

What Is Share Market?

SHARE MARKET is a marketplace where people can buy or sell shares of companies. Whenever you buy a share, the value of that share depends on the performance of the company. For example, if that company performs well then the value of your share increases several times, due to which you get some benefit, and if that company does not perform well then The value of your share can be less, which can cause loss to you.

The share market is quite volatile, which is why investing here is quite risky. Increasing or decreasing the price of shares in the share market depends on company performance, market sentiment, RBI policy, Lok Sabha election any major incident like war or pandemic situation.etc

How does the share market work?

1. Companies Go Public

When a company needs money to expand its business, then the company makes its shares public. This process is called Initial Public Offering i.e. IPO. When a company launches an IPO for the first time, it offers a portion of its ownership to the investor in the form of shares.

The company raises a lot of capital through IPO launch which the company can use that capital to expand its business for development or to reduce its debt. For example, there is a technology company that needs a lot of funds to develop its new product or to launch it in the market. Then the company thinks of launching an IPO. By doing so, investors buy shares of the company and become shareholders of the company. And the company has a lot of funds accumulated.

2. Buying and Selling Shares

After the launch of the company’s IPO, the company gets listed on the stock exchange and then its shares keep trading in the stock market. Investors can buy or sell the same stock on the stock exchange. In India, the Bombay Stock Exchange and the National Stock Exchange are the two main exchange platforms where all these transactions take place.

Whenever an investor wants to buy or sell shares, he has to execute his buy or sell order through a stockbroker. On the stock exchange both these orders match then the transaction will be completed This process creates good liquidity in the stock market due to which investors can quickly convert their shares into cash.

3. Stock Exchanges

The stock exchange plays an important role in the stock market as it is a big market where company shares are listed and from there, investors can buy or sell shares. Stock exchange provides investors with secure, efficient and transparent platforms. The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the two biggest stock exchanges in India.

Stock exchange provides real-time data to investors about the shares of the companies which trade in the share market such as share price, volume and market trend.

4. Stock Broker

Stock broker provides facilities to investors to carry out transactions in the stock market. Whenever investors want to buy or sell shares in the share market, they have to log in to this stock broker’s platform and execute the transaction.

Stock brokers like Zerodha, and Upstox provide an online platform to their clients where investors can log in and buy or sell their shares. These online platforms are quite cost-effective and convenient. Wah provides a user-friendly interface and real-time market data to investors.

5. Market Price

Investors’ sentiments are important in fluctuating the price of shares in the stock market. If all investors want to buy a particular share, then the price of that share will increase significantly because the demand for that stock will increase. Similarly, all investors want to buy a particular share. If you want to sell a stock, the price of that share will fall rapidly because the supply in the market will increase. This is a dynamic principle of the share market on which the prices of all stocks work.

There are many factors in the stock market that create supply and demand and the most important factor in that is the performance of the company. If a company is performing well in its business and is earning good profits, then all the investors will want to buy shares of that company, due to which the demand for that share will increase and its price will also increase. Similarly, if a company is struggling to perform and is incurring losses, most investors would prefer to sell the shares of that company, which would lead to a fall in the price of the shares. The price fluctuates in the market due to the sentiments of investors.

6. Indices

There are Indices in the stock market that are made up of groups of shares like NSE NIFTY 50 or BSE SENSEX which provide information about the performance of the share market by tracking the performance of a group of shares of the company. These indices combine the shares of companies from particular sectors. Stocks of the top 50 companies are listed in Nifty 50 and shares of the top 30 companies are listed in Sensex.

If Nifty 50 or Sensex is going up it means that India’s top companies are performing well. This attracts investors to buy stocks and a lot of investment is made in the stock market. Similarly, if the Nifty 50 or Sensex is going down, it means that top companies are struggling to perform and they are incurring losses in business.