how does the stock market work?. ‘Stock market is rising, it has gone bullish today or the stock market is very low today’. You must have heard all these phrases at some point in your life. And a question might have come to your mind that what actually a stock market is or how it works? Here are the answers to all your questions.
What is the Stock market?
In a very simple term just like vegetable markets where vegetables bought and sold, the same is the case of share market where instead of vegetable shares are bought and sold. Share means some percentage of ownership in a particular company to which that particular share belongs. It might seem to you a little bit complicated but it is not. So that’s how does the stock market work.
Participants in Share market
a) Securities exchange board of India (SEBI): It is the regulatory body of the stock market which creates many rules, regulations and policies, etc and every person has to abide by this. It is just like the supreme court of the security markets. The protection of investors is the primary motive of it.
b) Stock exchange: The stock exchange is the moderators that allow trading of securities from one person to another. There are two primary stock exchanges:
∙ Bombay stock exchange
∙ National stock exchange
c) Stockbrokers: These are the agents who on behalf of investors buy and sell securities. It may be a person or a firm. Stockbrokers charge some fees or commission for their services.
d) Investors and traders: Investor is a person or organization that holds some part of ownership rights of a company for which it holds some shares of it.
TYPE OF MARKET
The market is a procedural type of work. It involves a series of steps to be followed. To understand how the stock market works, it is important to know what actually primary and secondary markets are primary markets
It is a place where securities of a company are the first time sold off. It provides smooth opportunities to all those companies who want to sell their stock to the general public through IPO i.e. initial public offering. The interested investors can buy the shares of the company from the respective stock market work & exchanges where the shares are being offered and from that day onward the company is recognized as a public company because it has offered its stake to the public. Also, the company is supposed to pay fees to the stock exchanges where it is supposed to be listed. Besides this, it also has to file its solvency report, annual reports, balance sheets, etc. stock market work
This is the final step of the whole procedure. After getting purchased or sold the securities in the primary market then are traded in the secondary market. It means that those securities which were purchased during IPO can now be traded freely. Here the buyers and sellers meet directly to secure dealings positively. stock market work
HOW IT WOKS – THE SELLING AND BUYING OF SECURITIES.
After being listed to any stock exchanges, the company’s shares are freely traded able in the secondary market. This whole process of buying and selling should be done by stockbrokers, who act as middlemen between stock exchanges and the investors. The ultimate motive of trading is to avoid losses and earn maximum profits.
Stock Market Working Process
1.The function of Selling and Buying
- Suppose you as an investor wants to buy shares of a particular company. You informed the stockbroker about it and gives him a price range within which you want to buy those shares. Then your broker passes on the order to the stock exchanges. The stock exchange information about the sell order for the same shares. I found the stock exchange confirms the order and informs the stockbroker about it. Then the stockbroker provides you that the order is fulfilled. Also, the stock exchange verifies the details of the seller and buyer so that the transaction does not run down into default. After satisfying itself, it actually performs the function of selling and buying.
2. The Process of Transactions & Stock Exchange.
- Earlier this process of depositing shares in buyer’s accounts and payment to the seller usually takes one or two weeks but is now lowered down to T+2 days. Suppose there is the trade of stock today the respective shares are going deposited in buyers’ accounts by 2 working days. Stock exchanges give much of its endeavor that settlement should happen on time otherwise it will affect its repo. Besides this, the stockbroker, who is maintaining the account of the investors assigns them a code and that particular investor will be recognized by that code only.
3. After The Transactions and Legal Formalities
- After the transaction is performed, the stockbroker sends a contract note to the investor and that contract note contains the particulars of transactions performed like settlement time, purchase price, etc.
- In addition to the purchase price, the buying investor has to pay brokerage commission, fees, stamp duty, etc to the stockbroker. Brokerage commission is the charge for the services provided by the stockbroker.
Earlier at the broker and stock exchange level, many parties should be involved as a middleman like a brokerage order dept, etc. But now the whole process is electronically settled up so the meeting of buyer and seller happens very fast and trading takes place in just a few seconds.
HOW THE PRICES DETERMINED ?
how does the prices in stock market work?. The major reason for investing is to earn a high rate of profits. So there is must need for an investor to recognize a profit-making company. There are different factors for judging a company like what is going on in the economy, firms operating cycle or how is the firm operating previously, etc. That type of many things you must have to keep in mind while investing in a particular company.
But the basic criteria for valuing the securities of a particular company is the demand and supply of it in the security market or stock market. Let make you understand this through an example-:
Understanding Demand Supply by Simple Example
Suppose Mr. A has a 1 share of Rs. 1000 at present. He can easily convert it into cash by selling them in the stock market. But he is not willing to sell it, as he is supposing that its price may rise in the future as demand for this stock is very high in the market. On the next day, its price rise by 100 and now its price is Rs.1100, now also he is not willing to sell as he is supposing more.
But on the next to the next day, its price goes down to Rs. 800 due to some economic decisions of the government and its demand suddenly declines at a very high rate.
That’s how the prices in the market of a particular stock are determined. It basically depends on two general rules -:
a) When demand is high than supply prices rise.
b) When demand is low than supply prices falls.
This demand and supply factors depends on multiple factors.
So this is how the stock market works. There is much more to learn about it but it will definitely help you to understand the basic concepts of the stock market and its working. So Thats how does the stock market work with complete details. stock market work.
When Master Blaster used to play international cricket his dismissal adversely affected Indian Stock Market. stock market work.