What Is the Stock Market?
The share market, also known as the stock market, is a platform where publicly-traded companies issue shares to raise capital and allow investors to buy and sell those shares. By buying a share in a company, you acquire a fractional ownership stake in the company, which entitles you to a percentage of its earnings. Such financial activities are conducted through formal exchanges and over-the-counter (OTC) marketplaces under a set of regulations.
The terms “stock market” and “stock exchange” are frequently used synonymously. Traders who engage in the stock market participate in the buying and selling of shares on one or multiple stock exchanges that comprise the broader stock market.
The share market is regulated by stock exchanges, such as the New York Stock Exchange (NYSE), and Nasdaq in the United States (U.S.), National Stock Exchange (NSE), and the Bombay Stock Exchange in INDIA operates using a complex network of buyers and sellers. When you buy a share, When you place an order, you are essentially specifying a particular price and quantity of shares that you intend to buy. This order is then matched with a seller who is willing to sell their shares at the same price.
The price of shares is determined by the forces of supply and demand. If there are more buyers than sellers, the share price will increase, and if there are more sellers than buyers, the share price will decrease. Many factors can affect the supply and demand of a company’s shares, including its financial performance, broader economic conditions, and industry trends, etc.
Investors’ actions also have an impact on the behavior of the stock market, such as institutional investors and individual traders, who use various strategies to make profits. Some investors hold shares for the long term, while others engage in short-term trading or speculation. Furthermore, the stock market is subject to regulatory scrutiny and can be influenced by governmental regulations, news developments, and worldwide economic circumstances.
Understanding the Stock Market
The stock market serves as a platform for buyers and sellers of securities to come together, interact, and conduct transactions. It facilitates the discovery of prices for corporate shares and acts as a gauge for the overall economy. The market’s transparency, liquidity, and equitable pricing are ensured as participants compete in an open marketplace.
The London Stock Exchange, established in 1773, was the first stock market, initially operating out of a coffeehouse where traders gathered to exchange shares. The first American stock exchange, founded in 1790, was located in Philadelphia. The Buttonwood Agreement, signed by 24 traders beneath a buttonwood tree in 1792, marked the establishment of Wall Street in New York City. In 1817, the traders renamed their enterprise the New York Stock and Exchange Board
The Bombay Stock Exchange (BSE), also recognized as BSE Limited is an Indian stock exchange situated on Mumbai’s Dalal Street. Inaugurated by the cotton trader Premchand Roychand, a Kumaoni entrepreneur, in 1875, it is the most ancient stock exchange in Asia and the tenth-oldest globally.
The functioning of the stock market.
Stock markets serve as a controlled and secure environment in which market participants can transact confidently in eligible financial instruments, such as shares, with minimal operational risk. Functioning under the specific regulations stipulated by the governing body, these markets act as both primary and secondary markets.
The stock market serves as a primary market for companies seeking to sell their shares to the public for the first time via an initial public offering (IPO), enabling them to raise essential capital from investors.
To sell a portion of their ownership in a company, the company divides itself into multiple shares and offers them to the public at a set price per share. This selling process requires a marketplace, which is provided by the stock market. The company may subsequently offer additional shares to the public through follow-on offerings, such as rights issues, or choose to delist or repurchase shares.
Investors purchase company shares in anticipation of rising share values or dividend payments, or both. The stock market serves as a mediator in this fundraising process and receives compensation for its services from the company and its financial associates.
Using the stock market’s secondary market, investors can purchase or sell the securities they already own.
What are the Functions of a stock market?
The stock market ensures price transparency, liquidity, price discovery, and fair dealings in trading activities.
The stock market guarantees all interested market participants have access to data for all buy and sell orders, thereby helping in the fair and transparent pricing of securities. The market also ensures efficient matching of appropriate buy and sell orders.
In order to ensure fair pricing, stock markets must facilitate price discovery by enabling all buyers and sellers to collectively determine the price of a stock, with instant access to place orders and execute them at a reasonable price. Market participants include market makers, investors, traders, speculators, and hedgers, each with their own unique investment strategies and goals. While an investor may opt to buy and hold stocks for the long term, a trader may enter and exit a position within seconds, and a market maker may provide necessary liquidity in the market. Additionally, hedgers may trade in derivatives.
How Stock Markets Are Regulated
Most nations have a stock market, and each is regulated by a local financial regulator or monetary authority, or institute. The SEBI is the regulatory body charged with overseeing the INDIAN stock market.
SEBI (Securities and Exchange Board of India) is the primary regulator of the Indian stock market. It is an independent regulatory body that operates under the Ministry of Finance. The mission of SEBI is to protect the interests of investors, ensure the integrity of the market, and promote healthy competition among market participants.
Companies that are listed on Indian stock market exchanges are subject to regulations and monitoring by SEBI. The regulator sets certain requirements for listed companies, such as mandatory filing of periodic financial reports and disclosure of relevant corporate developments in a timely manner. These regulations are designed to ensure that all market participants have access to equal information.
Non-compliance with the regulations can result in penalties and disciplinary measures, including suspension of trading. SEBI works to maintain a fair, efficient, and transparent stock market that protects the interests of all investors.
Top 10 Largest Stock Exchanges in the World
| Stock Exchange | Year of Incorporation | Country | Market Capitalisation |
| New York Stock Exchange (NYSE) | 1792 | USA | $30 trillion |
| National Association of Securities Dealers Automated Quotations (NASDAQ) | 1971 | USA | $20 trillion |
| Tokyo Stock Exchange (TSE) | 1898 | Japan | $5.67 trillion |
| Shanghai Stock Exchange (SSE) | 1990 | China | $6.87 trillion |
| Hong Kong Stock Exchange (HKEX) | 1891 | Hong Kong | $43.64 trillion |
| European New Exchange Technology (EURONEXT) | 2000 | Europe | $6.65 trillion |
| Shenzhen Stock Exchange (SZSE) | 1990 | China | $5.24 trillion |
| London Stock Exchange (LSE) | 1801 | United Kingdom | $4.13 trillion |
| Toronto Stock Exchange (TSX) | 1861 | Canada | $3.1 trillion |
| Bombay Stock Exchange (BSE) | 1875 | India | $3.5 trillion |
What Is the Significance of the Stock Market?
The stock market is a component of a free-market economy. It allows companies to raise money by offering stock shares and corporate bonds and allows investors to participate in the financial achievements of the companies, makes profits through capital gains, and earn income through dividends. The stock market works as a platform through which the savings and investments of individuals are efficiently channeled into productive investment opportunities and add to the capital formation and economic growth of the country.
FAQ:-
“Who facilitates an investor’s trading activities in the stock market?”
Stockbrokers play a crucial role in the stock market by facilitating trades between investors and the exchanges, while portfolio managers are responsible for managing client portfolios and investing in securities on their behalf. Investment bankers also have an important function, representing companies in different capacities, such as taking private companies public through IPOs or advising companies involved in mergers and acquisitions.
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