Stock Market

You keep hearing about “start investing in the stock market”. Your friend’s portfolio is growing, instagram reels claim you can double your money if invested in the stock market and people around you seem to be talking about stocks. But pause for a moment and ask yourself — what really is the stock market and how does it work? If you have ever googled how stock market works in India or wanted to know who controls the stock market in India then this blog is for you. Let’s understand how stock market works step by step.   How Stock Market works in India   The working of the stock market might sound complicated but it is just like an online marketplace — example Amazon or Flipkart. So here, instead of buying clothes or gadgets, you are buying ownership in companies.  In the stock market you buy and sell shares of a company. When you buy a share of a company like Infosys or Reliance, you’re buying a small piece of that company. These shares are traded on stock exchanges like the NSE (National Stock Exchange) or BSE (Bombay Stock Exchange), where thousands of buyers and sellers like you come together, just like in an auction. The price of a share goes up when more people want to buy it and drops when more want to sell. All of this is driven by the law of demand and supply.   Key Participants of Stock Market When you place a trade in the stock market, there are several key players who work behind the scenes to make everything function smoothly. So let’s take a look: Investors: These are everyday people — students, salaried professionals, homemakers, or anyone with a Demat account who invest directly in the stock market or through mutual funds. If you’ve ever bought a stock through Zerodha or Groww, you are also a retail investor. Companies: Businesses list their shares on the stock exchange so that they can raise money from the public and for this they issue an IPO (Initial Public Offering). For example, when Zomato or LIC launched their IPOs, they were essentially inviting investors to become part-owners in their company in exchange for funds. Stock Exchanges: These are the official marketplaces where all the buying and selling of shares happen. In India, the two biggest stock exchanges are the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). But ​India hosts several other stock exchanges also, each serving distinct functions in the financial ecosystem:- National Commodity & Derivatives Exchange Ltd.  Multi Commodity Exchange of India Ltd. Metropolitan Stock Exchange of India Ltd Calcutta Stock Exchange Ltd.   SEBI (Securities and Exchange Board of India): SEBI acts like the traffic police of the Indian stock market. SEBI’s work involves regulating and monitoring all activities of the stock market to make sure no one is manipulating prices, cheating investors or breaking any rules. Brokers: You can not buy shares directly from the exchange. You need a broker — like Zerodha, Upstox, or Groww — who provides the platform to place your buy/sell orders. Before the rise of these online brokers people used traditional stockbrokers to invest in the stock market. Think of brokers as the bridge between you and the stock exchange. Types of Stock Markets   Understanding the different types of stock markets is crucial for gaining a deeper insight into how the stock market works.   1. Primary Market  This is where the shares of a company are issued for the first time to the public through IPOs (Initial Public Offerings). The money raised goes directly to the company, which is then used for expansion, debt repayment or new projects undertaken by the company.   2. Secondary Market  After the shares are listed on stock exchanges like NSE or BSE they enter the secondary market. Here, investors buy and sell shares among themselves — the company doesn’t receive money anymore. Both markets are key parts in the working of the stock market in India. They play an important role in how companies raise money and how investors do trading.   Trading in Stock Market  Secondary Market is the place where trading in the stock market happens. Here investors buy and sell the listed stocks. Below is the step by step procedure:  Open a Demat & Trading Account: You need these accounts with a broker (like Zerodha or Upstox) to start with your trading journey. Select a Stock: Choose the stock of your choice that you want to buy or sell. Place a Buy/Sell Order: Buy Order: You set the price at which you want to purchase the stock. Sell Order: You set the price at which you are willing to sell your stock. Order Matching: When your buy and sell orders match, the trade is executed automatically. Shares Reflect in Your Demat Account: After the trade is done, the shares you have bought will show up in your Demat account. While trading, here are some of the fees you will pay: Brokerage Fee: Charged by the broker for every trade. STT (Securities Transaction Tax): A government tax on buying/selling of stocks. Exchange Transaction Charges: Charged by the stock exchange NSE/BSE. GST: On the brokerage + transaction charges. Stamp Duty: Small tax charged by the state government. SEBI Charges: A small fee charged by the Securities and Exchange Board of India.   What influences a Stock’s Price   A stock price is the current value of a share at which it is being bought or sold in the market. Demand and supply primarily determines the price of a stock in the market. When more investors are willing to buy a stock than selling it, the price of the stock rises. Similarly, when more investors are willing to sell than buying, the price of the stock falls. This continuous buying and selling happens in the secondary market and prices adjust themselves instantly based on new information. But do you really know what drives this demand and supply?