Basics Of Stock Market

By Aakash 15 Comments 29 Sept 2018
An Introduction of SEBI

An Introduction of SEBI

The Security and Exchange Board of India (SEBI) is mandated to oversee the secondary and primary markets, regulated to protect investors. Since 1988 when the Government of India established SEBI as the regulatory body of stock markets. Within a short period of time, SEBI became an autonomous body through the SEBI Act of 1992. SEBI's stated objective is to protect the interests of investors in securities and to regulate the securities market and for matters connected therewith or incidental thereto. it is expected to be responsible to three main groups: the issuers of securities, investors, and market intermediaries.

SEBI’s basic objectives are:

  • Protecting the interests of investors in stocks.
  • Promoting the development of the stock market.
  • Regulating the stock market.

Stock Exchange


Stock Exchange

The platform that provides the facilities used to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers.

India’s premier stock exchanges are:-

1956: Bombay Stock Exchange (BSE) become the first stock exchange to be recognised under the Securities Contract Act.
1993: National Stock Exchange (NSE) recognised as a Stock Exchange.
Within a few years, trading on both the exchanges shifted from an open outcry system to an automated trading environment.

Share Market Or Stock Market

A share market is where shares are either issued or traded in. A stock market is similar to a share market. The key difference is that a stock market helps you trade financial instruments like bonds, mutual funds, derivatives as well as shares of companies. A share market only allows trading of shares.

There are two kind of Share Market:


Types of Share Market

Primary Market:

This where a company gets registered to issue a certain amount of shares and raise money. This is also called getting listed in a stock exchange. A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called an Initial Public Offering (IPO). The company thus becomes public.

Secondary Market:

Once new securities have been sold in the primary market, these shares are traded in the secondary market. This is to offer a chance for investors to exit an investment and sell the shares. Secondary market transactions are referred to trades where one investor buys shares from another investor at the prevailing market price or at whatever price the two parties agree upon. Normally, investors conduct such transactions using an intermediary such as a Broker, who facilitates the process.

Buy & Sell Shares

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Financial Instruments traded in Share Market:

Bonds:

Bonds

Companies need money to undertake projects. They then pay back using the money earned through the project. One way of raising funds is through bonds. When a company borrows from the bank in exchange for regular interest payments, it is called a loan. Similarly, when a company borrows from multiple investors in exchange for timely payments of interest, it is called a bond.

Secondary Market:

The share market is another place for raising money. In exchange for the money, companies issue shares. Owning a share is akin to holding a portion of the company. These shares are then traded in the share market. Thus, as a stockholder, you share a portion of the profit the company may make as well as a portion of the loss a company may take. As the company keeps doing better, your stocks will increase in value.

Mutual Funds:

Mutual Funds

These are investment vehicles that allow you to indirectly invest in stocks or bonds. It pools money from a collection of investors, and then invests that sum in financial instruments. This is handled by a professional fund manager. Every mutual fund scheme issues units, which have a certain value just like a share. When you invest, you thus become a unit-holder. When the instruments that the MF scheme invests in make money, as a unit-holder, you get money. This is either through a rise in the value of the units or through the distribution of dividends – money to all unit-holders.

Derivatives:

The value of financial instruments like shares keeps fluctuating. So, it is difficult to fix a particular price. Derivatives instruments come handy here. These are instruments that help you trade in the future at a price that you fix today. Simply put, you enter into an agreement to either buy or sell a share or other instrument at a certain fixed price.

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