What is share / Stock Market?
A Stock market is where investors connect to buy and sell investments product most commonly where Shares, Debentures, Mutual Funds, Derivatives, and other types of Securities are bought and sold.
Share means “share” and in the language of the stock market,” share” means share in companies. When you buy shares of a company, you become a shareholder of the company. The market is the place where you can buy and sell. In a literal sense, the stock market is a place to buy and sell a stake in a listed company.
For example, if a company has issued a total of 1 lakh shares and you have bought 10 thousand shares out of that, then you become a 10% shareholder of that company. You can sell these shares in the stock market whenever you want.
There are two major stock exchanges in India called the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
Regulatory of the Indian Stock Markets
The regulation and supervision of the stocks markets in India The Securities Exchange Board of India is the Indian stock exchange regulatory body, which was established in the year 1992,SEBI is an institution created by the Constitution of India, SEBI ACT 1992, which oversees the business of the Stock Exchange.
The main objective of SEBI is to provide better protection to the interests of Indian stock investors and to arrange and control the rule of law for the development of stock exchange and running it smoothly.
SEBI is responsible for the three Groups on the stock exchange
- Issue company in stock or Securities
- Stock Market participants Purchasing stock or Securities
- Intermediaries involved in the stock market, such as stockbrokers, banks, other entities
Types of Share Markets
There are two kinds of share markets namely the Primary Market and the Secondary Markets.
When a company raises money from investors for the first time by selling some of its stakes through the stock exchange, then it has to offer an IPO. This is called the primary market. For this, companies have to register here. After this, shares become available for the general public to buy. Listing on the stock exchange (BSE, NSE, etc.), companies reach the investors through the primary market.
If a company wants to get an IPO, then it has to give information about its finance, promoter, business, number of shares, price, etc. After when a company requires more money even after the IPO, it raises money through the rights issues. Rights Issues mean shareholders of the company have the rights, that the company sells the shares only to its shareholders, instead of any other investors.
secondary stock market this market, shares of a listed company are bought and sold. In this market, another person buys in real-time at the stock market price that someone has. Usually, these buys and sales are done through a broker. These transactions that take place in the secondary market are called trades It is through the secondary share market. that an investor gets the facility that he can exit the market by selling his shares to someone else.
How does the stock /share market work?
Share market works in the following order:
- A company gets listed in the primary market through an IPO.
- Shares get distributed in the Secondary Market
- The stocks issued can be traded by the investors in the secondary market.
- Stockbrokers and brokerage firms are entities registered with the stock exchange which offers you to buy a particular share at the said price
- Your broker passes on your buy order to the exchange, which searches for a sell order for the same share.
- The process takes T+2 days i.e. you will get your shares deposited in your Demat account in two working days.
- Listing of the Company in the Primary Market
Primary stock market stockholders, especially corporate, register their companies with SEBI through IPOs. A company lists its shares in the primary market through an initial public offer or IPO. Through an IPO, a company sells its shares to the public for the first time will open an IPO for a specified period inside this window, investors can bid for shares and buy at the price announced by the company.
- Stock Exchange Roles
After listing the company in the primary market through IPO company eligible for listed in the Stock Exchange.The stock exchange is precisely a platform that conducts the Buy and Sells of financial instruments like stocks, bonds, derivatives, and other financial instruments. The activities on this platform are regulated by the Securities and Exchange Board of India. The participants have to register with SEBI and the stock exchange to conduct trades. Trading activities include brokering, issuing of shares by companies, etc. Stock exchanges often function as “continuous auction” markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic trading platform.
In India Mostly two stock exchanges to trade by investor and retail trader.
1 National Stock Exchange (NSE)
2 Bombay Stock Exchange (BSE)
- About NSE (National Stock Exchange)
- NSE is the most influential stock exchange in India, the reason being that it provides derivatives trading apart from the normal shares trading. Salient features of NSE are as follows:
- NSE has a Market Capitalization of more than US$ 2.02trillion till 31st December 2019.
- It is also called as NSE 50 or Nifty.
- It provides trading in Equity & Equity Linked Products, derivatives, and debt.
- The National Stock Exchange of India Ltd. (NSE) is the leading stock exchange in India and the second largest in the world by nos. of trades in equity shares from January to June 2018, according to the World Federation of Exchanges (WFE) report.
- About BSE (Bombay Stock Exchange)
BSE is the oldest stock exchange of Asia established way back in 1875 and is located in the Dalal Street, Mumbai. Some of the features of BSE are as follows:
• BSE has a Market Capitalization of US$2 trillion till 8thfeb 2020.
• It has 5,439 listings of companies ranging from small-capitalization to large-capitalization companies.
• It is also called as BSE 30 or simply SENSEX
• It is the 12th largest stock exchange in the world and claims to be the fastest stock exchange in the world with a median trading speed of 6 microseconds.
Trading mechanism in Stock Exchange
This is the market where equities, mutual funds, debentures, ETFs, bonds, etc. are bought and sold.For the first time, securities issued by a company are issued to the public in the primary market. Once the IPO is over and the stocks are listed, they are traded in the secondary market. This is the marketplace for the buyers and sellers to transact and make profits or incur losses. SEBI is the controller of the exchange.
Now we will learn about the trading platform or the software used for trading. To create greater transparency and efficiency in the trading system, NSE and BSE use a nationwide online fully automated “screen-based trading system”. The trading platform used by BSE is called BOLT-Bombay Online Trading. NSE provides its customers with a fully automated screen-based trading system known as a NEAT system, in which a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds a matching sale or buy order from counterparty. It electronically matches orders on a price/time priority and hence cuts down on time, cost, and risk of error, as well as on fraud, resulting in improved operational efficiency. It allows faster incorporation of price-sensitive information into prevailing prices, thus increasing the informational efficiency of markets.
Now we will be moving into the trading Process
Select Stock Broker
If you want to buy or sell a share of stock in a public company you will need a broker to help you to complete your transaction. In stock exchange lakh of investor traded, it is difficult for them to assemble in one location. Therefore, to conduct trades smoothly need stockbrokers and brokerage firms. A stockbroker is a licensed and regulated financial firm that facilitates buying and selling transactions in various financial instruments such as – stocks, derivatives, bonds, and IPOs. A Stockbroker act as a mediator between investor and stock exchange. Stockbroker executes your trade as per your instruction. If the broker executing your trades in the stock exchange, the broker charges a commission.
There are two type of stock Brokers
- Full Time Stock broker or Traditional broker
- Discount Broker
Full Time stock broker or Traditional Broker
Traditional stockbrokers or full-service stockbrokers is a broker to providing all type financial services and products, like research reports, advisory, Financial Planning, Tips, and Support you to buy and sell shares. They also offer a wide range of products including Mutual Funds, IPO, Debt, Insurance, Loans, etc.
Full time Stock Broker
A discount broker is a broker who provides comparative and attractive brokerage rates, with excellent customer service. A discount broker is carrying out buys and sells orders, does not offers any investment advice to clients. Discount Broker Charges
Discount Stock Broker
Before Chose your Broker you most know this Point
- The decision of choosing a brokerage house is purely dependent on personal need and preference
- If you have enough knowledge, time and are comfortable in making your own decision without any assistance, then the discount broker is good for you.
- On the contrary, if you are new in market and do not mind paying extra commission for the advisory services to save your time, then you can go for Full service broker.
- A new participant in the stock market must consider the above to take the best decision
Opening Trading Account
After choosing your best stock broker as per your requirement open a trading account. The broker always opens a trading account in his name of investor or Client. if satisfied with the creditworthiness of the client he/she will open the account The minimum requirement of Documents like PAN card, Adhar no, and bank account, etc. but without bank account you will not open account. After opening trading account notification provided by the broker through email than eligible for invest in Equities, Derivatives, and Commodities. Broker provided a trading platform for investing or trading.
After the account is opened with success the investor will begin trade as per his/her would like. The trader or investor is completed by getting a range of shares of a selected company. The order once placed is incomplete until the order standing shows complete. Totally different on-line trading platforms follow different symbols to mark the order putting. The order also can be placed via a telecom decision with the broker.
There are different kinds of orders:
If Investor bid for Buy order in any stock, it means expected to the stock price is rise. It depends on the demand and supply of curve. if demand increases people buy more and more than price is rise.
The window for a buy order is shown below
Sell order is opposite of buy order if investor put sell order it means price decline. However it is totally based on analysis and predictions.
The window for a sell order is shown below
It’s an order for getting or promoting of securities at a specific worth as set by the investor. Nonetheless, there isn’t any assurance that the restricted order will likely be executed. For instance, the worth of a Share X is Rs. 234.65 and the investor locations an order to purchase the share X 100 amount at Rs. 223.05 or much less. But when the worth of share X doesn’t fall until Rs. 223.05 then the investor can’t purchase the shares.
Stop Loss order
It’s an order to promote the shares as quickly as the worth of the share falls as much as a specific stage or from the purchase facet to purchase the share when the worth rises as much as a specified stage. That is set by the consumer to avert the loss which might happen in share market. That is completed to not endure loss greater than the desired restrict.
Allow us to take an instance:
Purchase Worth: Rs. 234.95, Amount: 300, Promote Worth: Rs. 295.05, Cease Loss: Rs. 220.50,
Suppose the inventory worth falls to 220.50 and when the share will attain Rs. 220.50 the order will likely be offered and the loss quantity will likely be (234.95- 220.50)*300 =Rs. 4335. Nonetheless, if the Cease loss has not been stored and the worth falls to Rs. 205.75 then the loss would have been (234.95- 205.75)*300 = Rs. 8760.
So as a result of cease loss the loss had been averted.
Inserting a cease loss in intraday buying and selling terminal:
A market order is executed at CMP (Present Market Worth). It happens primarily throughout intraday buying and selling. When the client has purchased the shares and has not offered the shares earlier than 3:15 pm then from the dealer facet the shares are offered at CMP.
If the worth will not be matched then the order is cancelled and new contemporary orders need to be positioned once more. Additionally, nevertheless, if the margins are inadequate then the order is cancelled. In that case, the dealer has to put an order with a diminished variety of order amount.
The validity of those orders is for the day by which they’re put within the buying and selling platform. Nonetheless, if they aren’t executed (purchase/promote) then the orders are canceled routinely from the dealer facet.
Good till Day order
Order might be positioned by the investor specifying the variety of days for which the orders will stay open. Nonetheless even after the worth stage will not be met then the order needs to be canceled and it’s routinely canceled.
Market depth reveals the variety of Purchase and Promote orders for a safety at varied worth ranges at a single level of time. Within the left facet we’ve JYOTHYLAB’s market depth the place the bid amount together with the bid worth is talked about and on the finish we’ve the Complete Purchase Amount.
In promote facet we’ve the ask worth and the ask amount together with the Complete Promote Amount.
Allow us to take an instance to know its working in particulars. You may have positioned an order to BUY 20 shares intraday at a worth of Rs. 447.65 then the order will likely be positioned for 20 portions, related in case of promotion amount. Allow us to take another occasion say you need to BUY 10 shares for Rs. 447.63 then we’ve to BUY at Rs. 447.65 as an alternative of Rs. 447.60.
STEP 4:Execution of the Order
The orders are executed by the dealer on behalf of the shoppers. The purchase orders should tally the promote orders if not then the dealer will promote/purchase to match the order. For this the dealer prices an quantity. Usually, in a digital platform the execution happens routinely.
STEP5: Preparation of Contract Notes
A contract observes is a written settlement between the dealer and the investor for the easy execution of the transaction. A contract observes is shipped by an automatic message and by way of mail by the registered telephone and mail respectively by the top of the day. Nonetheless, it varies from dealer to dealer and the timing varies.
A contract incorporates the transaction title, brokerage prices, buying and selling on BSE/ NSE, SEBI registration variety of the dealer, settlement quantity, and a digital signature by the dealer.
Beneath is the portion of a contract observe, exhibiting the ultimate quantity to be paid by the consumer
Below is the portion of a contract note, showing the final amount to be paid by the client
So, it shows that the client has to pay Rs. 115.50 for the transaction that he has done inclusive the taxes. The amount is debited directly from the client’s account.
STEP 6: Contract Settlement
The settlement is done by the clearing agency which functions in each stock exchange. The clearing agency delivers the share certificates by the end of the day.
Flowchart of Trading