Basics of Stock Markets

Stock Market is a common area where the shares(Stocks) of the companies are traded between buyers and sellers. We need a stock market to provide a common platform so buyers and sellers can identify themselves to trade shares. There are a variety of markets such as Stock Market – A market where companies’ stocks are traded, Forex – A market where foreign currencies are traded and Commodity – A market where commodities such as Copper, Sugar, Gold etc. are traded. A stock market is run by an exchange known as stock exchange. E.g., NSE, BSE etc. SEBIs role is to regulate these exchanges and to play a supervisory role. A primary market is the initial offering that comes to public when the company is opened up through the markets to raise capital. Typically known as Initial Public Offering. Gets new investors by issuing shares in exchange of cash from them. Typically investors and company promoters are the participants. Money flows from investor to company and shares flow from company to investors for the money paid. A secondary market is the place where the shares are traded. Investors i.e., buyers and sellers of the shares are the participants. The price, volume, company performance all play a crucial role in determining the price in which a company stock is traded. Company gets no money based on secondary market trading. IPO is initial public offering. Companies will have to approach SEBI typically mediated by an investment bank in order to take them public by announcing IPO. These are some of the fundamentals of stock markets.