The Stock Market, also known as the Share Market, is one of the most interesting phenomena, primarily due to how the stock market works! Most people are intrigued by the stock market, but only a few in India dive into it. While the stock market can open up an abundance of opportunities but it can also be merciless if you do not learn before jumping into it. So, while we will be discussing how the market works briefly in this article, to understand how the market works, you must join a stock market free course to have practical experience and learning. 

This article will discuss the market participants, segments of markets, and how each of these works to run the entire stock market.

Stock Market Participants

To understand how the market works, we need to first learn about the participants in the share market, and one of the best ways to do that is by joining Free stock market courses. There are primarily five types of stock market participants, which include –

1. Securities and Exchange Board of India (SEBI)
2. Stock Brokerage Houses
3. Depositories
4. Stock Exchanges
5. Investors and Traders

Securities and Exchange Board of India (SEBI)

SEBI, as you may know, is the stock market regulator in India. It is at the top of the entire stock market structure that prevails in India. It is the duty and role of SEBI to make all the rules and regulations that all other market participants have to follow. SEBI also has to keep an eye, that is to monitor the market continuously.  Any ambiguity in the market is a responsibility of the SEBI, which it needs to take care of.

Stock Exchanges

Stock exchanges are the institutions that facilitate investments and trading in the stock market. It is where all the stocks, bonds, currencies, commodities, and other asset classes present in the capital market and stock market in India are bought and sold. For equities, there are generally two market segments, which are -

• Primary Market: It is where the companies issue their stocks for the first time to the general public, and the public can subscribe and invest in the same.
• Secondary Market: After getting subscribed and allotted in the primary market during (IPO, when the investor sells the stock or someone wants to buy the stock after the IPO, it is done in the secondary market. It is after the IPO, when the stocks are listed, that they enter the secondary market, and here all the trading and investments happen.

It is crucial to understand how both these market works, and you can do that by joining a Stock market course for beginners.

In India, there are two primarily functional stock exchanges, and they are –

• National Stock Exchange (NSE)
• Bombay Stock Exchange (BSE)

How do stock exchanges and markets work?

When the companies issue stocks, they launch the same either on the NSE or the BSE or both, depending on the type of IPO. Now, once the IPO is launched, investors start applying to the stock exchange, and once the IPO closes, the stocks are allocated as per subscription and the rules of the IPO. Now the investors get their stocks in their Demat account. So, for applying for IPO, you need to open a free demat account.  Now you can hold the shares in your account if you want to go for long-term investments, or you can sell the stocks to make quick returns. To understand this better, you can join a good stock market free course.

While this is about the primary market, here is how the secondary market works.

People who buy shares in IPOs, when they want to sell, enter the secondary market. Now other people want to buy these shares. This creates a demand and supply framework. In the secondary market, both traders and investors can take part. Traders can even trade the securities for a day or even for a few hours without taking ownership of the stocks. The secondary market helps in the price discovery of the stocks.

Price Discovery of Stocks

The price of a security changes quite fast in the stock market; you must have noticed that. This happens due to the demand and supply framework created in the secondary market by buyers and sellers of the stocks.

The price of a stock is determined by the intersection point of the demand and supply of the very stock. The price moves up when the demand is higher than the supply, while the price falls when the supply is higher than the demand.

In simple words, when more investors are buying a greater number of the stock than the number of stocks being sold, then the price increases. On the other hand, when the number of stocks being sold is higher than the number of stocks being bought, the price falls. If you want deeper insights into the price discovery method in the stock market, you must join the best courses for the stock market.

Depositories

While the buying and selling happen on the stock exchanges, the Depositories play a crucial role in holding the securities of the investors and traders in their demat accounts and also maintaining those accounts.  When you open a free Demat account, it is through a Depository Participant (DP), which is registered with either National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL).

These two act like banks and offer demat account services to investors and traders. They facilitate the entire dematerialization of securities, which means holding the securities in digital format.

Now, depositories have the role of a bank where they hold the securities and release them when a trade is placed from your account. For instance, if you are buying stocks, then the new stocks bought will get to your demat account if you take delivery of them and hold them for the long term. If you are selling the securities, the securities will be released by the depositories from your demat account.

Stock Brokerage Houses

Now, coming to the intermediaries that connect investors and traders with the stock exchanges and depositories, these are the stock brokerage houses commonly known as stock brokers.

So, the stock brokers provide the traders and investors with the necessary facilities and tools for trading and investments. For instance, you need to open a demat and trading account with a stock brokerage house, not directly with the stock exchange.

Then you need a trading and investment platform for placing your orders, tracking your portfolio, analyzing stocks, and all these are offered by stock brokers. So, it is important to open a free demat account if you want to start your investment journey.

The orders are placed on the trading platforms offered by the stock brokers, which are then transmitted to the stock exchanges, and then the buying and selling of the stock happen. It is important to choose the right broker always, and to help you with that, you can join a Trading course online for free to understand which criteria your broker should meet.

Investors and Traders

Finally, some investors and traders buy and sell the securities, and the entire processes mentioned above take place. Investors and traders place orders on the stock trading platforms of the stock brokerage house. Then the same is intimated to the stock exchange, the transaction takes place, then the stocks are sent to or released by the depositories, and the clearing houses clear the transactions, completing the entire process, and SEBI monitors this all.

Conclusion

So, now you have an idea of how the stock market works, don’t you? However, to have an in-depth idea of how the market works, it is always advisable to learn from the experts. This is where the stock market free course comes in, which can help you learn about the entire market and help you start your trading or investment journey in the market as well.