What is the Stock Market and How does it work?
A stock market provides a platform where the buying and selling of stocks can be done in a transparent manner. Various financial instruments can be traded in the stock market like shares, derivatives, bonds etc. The source that allows the buying and selling of shares is a stock exchange. In India the two major stock exchanges that govern the stock market are the National Stock Exchange which is also called as NSE and the other one is Bombay Stock Exchange that is called as BSE. Majority of the stock trading in the country takes place at these two stock exchanges. BSE was established in 1875 and NSE was founded in the year 1992. Nowadays the entire trading is done in an electronic form with computer aided technology that ensures transparency as well.
The working criteria of the Stock Market
For any type of dealing in the stock market it is a prerequisite that the market participants have to be registered with SEBI i.e. the Securities and Exchange Board of India. All the companies that are listed on the stock exchange, the brokers, traders and investors have to follow SEBI guidelines in this regard.
When an IPO (Initial public offer) is launched by the company then it gets listed in the primary market. The offer states the vital details like information about the company, stocks that are issued, pricing and other details. The investors who will bid in the primary market will be allotted the stocks. Then these listed stocks can later on be traded by the investors in the secondary market. Secondary market is the main platform where majority of trading in stocks actually takes place.
Role of intermediaries in the Stock Market
The brokers and brokerage firms are the entities registered with the stock exchange and they help the investors to conduct the trading as per their wish. An investor can handle all the sale and purchase of stocks through a registered broker.
Processing of orders
Order is received through a broker to either buy or sell a fixed quantity of stock and at a particular price. The stock exchange confirms the details of buyers and sellers and then the transfer of stock is done. Everything is handled electronically through demat and trading account. This entire process is called as settlement. This period is T+2 days and the subsequent two days here mean working days. For example if trading was done on Monday then it will be settled by Wednesday. It is the responsibility of stock exchange to ensure that the trade is honored within the agreed settlement period.
Timings of operation
The trading in stock market takes place between 9:55 am till 3:30 pm from Monday to Friday and everything operates as per the Indian standard time that is GMT+5.5 hrs. There is a clearing house associated with each stock exchange which has the task of handling entire settlement risk and is thus the central counter party involved in the transaction.
The stock prices can go up and down on a daily basis because everything is dependent on the perceived value.