What is a Stock Market?
Stock markets provide a place to buy and sell financial assets. It allows investors or traders to deal in bonds, stocks, mutual funds, currencies, commodities, derivatives, etc., to make short-term and long-term profits via investing and trading. Stock markets keep fluctuating, and their conditions change every moment, impacted by numerous factors, like geographical and political changes, world economy, announcements by companies, etc. Sometimes the stock market reacts hugely, and sometimes a mild fluctuation can be seen.
The Introduction of Online Trading System
Online stock trading, which commenced in 1991, has changed the process of approaching the stock market. Stock exchanges operate online and allow you to access the stock market online. The stock market works electronically and deals with dematerialised securities only. Hold your securities electronically in your demat account and place trade orders to buy or sell securities using your trading account.
Bear and Bull Market
A continuous downturn in the prices of securities is a declining market called a bear market. It shows a declining economy. Conversely, a bull market is where securities prices are on the rise in a sound economy.
Who Regulates Stock Markets in India?
The Securities and Exchanges Board of India (SEBI) is the capital market regulator that ensures transparency in the Indian stock market. It keeps implementing rules and regulations for the smooth functioning of the market and works in the investors’ interests. For example, to encourage more retail participation, it has mandated stockbrokers to offer a free demat account with basic services called Basic Service Demat Account (BSDA). All stock exchanges, companies, brokerage firms, and other market participants have to abide by the SEBI guidelines in the online trading system.
Primarily, the demand and supply of securities in the stock market drive their value. Stock exchanges keep tracking the supply and demand of listed stocks. The market allows buyers and sellers to negotiate asset prices to maximise fairness for both parties.
Types of Stock Markets
- Primary Market: The primary market, also called the IPO (initial public offerings) market, is the market where privately held companies go public and offer their shares to raise capital. Through the IPO process, companies get listed in the stock market. They can issue their fresh equity shares, or it can be an offer-for-sale with the shares of existing shareholders.
- Secondary Market: In the secondary market, stocks of listed companies are traded on the stock exchanges. For investors, it is an efficient trading platform where they can negotiate security prices. For listed companies, the secondary market is a monitoring channel for their value in the market.
- Over-the-Counter Market (OTC): The OTC market is used to trade stocks of unlisted companies. Here individuals do not purchase shares directly from the company under the surveillance of the SEBI but purchase them from other investors holding shares, like employees of a company holding Employee Stock Ownership Plans (ESOP). However, these unlisted stocks are also stored in demat accounts. OTC stocks’ liquidity is low because of very low trading volume.
Online Trading Process
To start trading, you need to open your demat account and trading account with a stock broker and link them with your bank savings/current account.
- All these three accounts are linked to each other. Whenever you purchase securities using your trading account, they are reflected in your demat account, and your linked bank account will be debited with the transaction value. And, when you sell your demat securities, your linked bank account will be credited with the sale proceeds.
- When you place a trade using your trading account, your broker forwards it immediately to the relevant exchange. It executes the order after matching an order of an individual looking to trade the same securities in the same number.
“T+days” Settlement
When you place trade orders in the online trading system, they are settled based on “T+2 days”. T is the transaction day. As per the SEBI’s recent reform, stock exchanges can opt for the “T+1” days system also. The settlement period varies in different segments of stock markets.
Thus, stock markets are easily accessible with a demat and trading account with brokers. With such easy accessibility, retail participation is increasing rapidly as individuals are becoming more aware of the easy investing process. You can consider discount brokers for affordable demat and online trading services.
