What is a stock market? A comprehensive guide

The stock market plays an integral role in the country’s economy. Owing to its dynamic ecosystem, understanding the intricacies of the market is crucial to investors and traders alike. In this blog, we will explore the fundamentals of the stock market, its mechanics, and basic terminology. 

So, let’s start with the very basics.

What is a stock market? 

A stock market is an ecosystem that consists of buyers and sellers of stocks, and the stock exchanges. Basically, it is the market people go to for buying and selling a portion of companies. Let’s break it down, shall we?

Suppose you are going to a supermarket. If the supermarket were the stock market, then the products on the shelves would be the shares of various companies. You become the shareholder of the company whose products you buy.

Stock Exchanges in India

India has two major stock exchanges - the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The stock exchanges are platforms for buyers and sellers of stocks and other financial securities. The NSE is India’s largest exchange in terms of volume traded on a daily basis while the BSE is Asia’s oldest stock exchange. 

In addition to the NSE and BSE, India is home to 21 regional stock exchanges. All investors and traders, be it retail or institutional investors, transact through these exchanges. Companies can list on any one of these exchanges or even all of them. 

Basic Terminologies 

Let us understand some basic terms and jargon that you might have heard. These terms will help you learn how the stock market works.

1. Listed companies
   Companies that want to raise capital and diversify their shareholder base get listed on the stock market through an Initial Public Offering (IPO). Once listed, investors and traders can buy and sell their shares.
2. Stockbrokers
   Stockbroking companies are financial intermediaries between the exchange and traders or investors that connect buyers and sellers through their online trading platform.
3. Sensex and Nifty
   They are the most popular market indices in the Indian stock market. Sensex and Nifty represent the market trends, sentiments, and overall performance.
4. Market capitalisation
   The overall value of a company in the stock market is its market capitalisation. Based on the m-cap, stocks are segregated into large-cap, mid-cap, and small-cap.
5. Dividends
   Listed companies share a part of their profits with their shareholders. These profits are known as dividends and are often distributed to shareholders quarterly.

Who controls the regulations of the stock market?

The stock market in India is regulated by the Securities and Exchange Board of India (SEBI). It was established back in 1988 as a non-statutory body and was given statutory powers in 1992 to protect the interests of investors and maintain transparency in the market. SEBI works towards the protection and needs of three groups: security issuers, investors, and financial intermediaries.

Listed companies must comply with the rules and regulations set forth by SEBI. Since the board works on eliminating misinformation and building transparency for investors, the market becomes a more efficient environment.

Conclusion

While this article covers the basics of the stock market, there is a multitude of variables at play. If you understand the mechanics, you can navigate through the complex dynamics of this market with relative ease. Staying informed about regulatory changes, market trends, and news is crucial for investors, whether new or experienced. You can read our blogs to dive deeper into financial markets and become a better, smarter investor or trader.