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Basic Understanding Of Stock Market For Beginners

The Indian stock market is one of the most discussed topics. Its popularity has grown with several people wanting to start trading and investing in stocks. But how do you start? What is stock market? As exciting as the Indian stock market sounds, it is equally risky. Thus, you must have a basic understanding of the market to trade or invest in it.

What is the Stock Market?

To begin with, the stock market and share market mean the same thing. It is a platform where all the buyers and sellers of stocks come together to trade the shares of different companies. There are 2 primary exchanges in India – the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

The NSE was established in 1992. However, the trading started in 1994. Similarly, the BSE has been in operation since 1875. Although the BSC is older than the NSE, the latter is a larger stock market regarding volume. The primary index of BSE, BSE Sensex, includes 30 stocks, whereas Nifty, the primary index of NSE, comprises 50 stocks. Besides BSE and NSE, there are other types of exchanges as well.

Stocks v/s Shares

Stocks are essentially the company’s ownership certificates. Their price varies according to how well the firm is doing. They could solely be accessible to private investors, or they may be publicly listed on the stock market. Conversely, shares describe the proportional ownership of stock in a single firm. For instance, an investor would control 5% of a corporation if they owned 50,000 of its 1 million outstanding shares.

Traders v/s Investors

Traders buy stocks intending to sell them in a matter of minutes, hours, or days. Contrarily, investors participate in the market for the long term and hang onto their investments for several months or even years.

What Accounts Do You Need?

To start trading, you must open a trading account with the broker and own a Demat account. Your trading account is where you place your buy and sell trades. In contrast, your shares are in the custody of the Demat account. When you purchase shares using your trading account, your bank account is debited, and your Demat account is credited. When you sell shares, the opposite is accurate.

How Do You Trade?

Both the exchanges use an open electronic limit order book for trading. It is an electronic system wherein the trading computer matches the order. Earlier, trading used to happen in market makers. Also, the entire trading process is order-driven. As a result, the placed market orders automatically get matched with the best limit orders, ensuring the anonymity of the buyers and sellers.

The trading system requires that all orders be placed via brokers, many of which provide ordinary consumers with an internet trading platform. Institutional investors can also benefit from the direct market access (DMA) option, allowing them to place orders using trading terminals provided by brokers.

Trading Hours

All stock market trading occurs between a set time – Monday through Friday between 9:55 a.m. and 3:30 p.m., Indian Standard Time (plus 5.5 hours GMT).

Settlement

The equity stock market adopts a T + 2 rolling settlement, meaning that all the trading that happens on Monday is settled by Wednesday. Each exchange has a clearing house that acts as a central counterparty and takes all settlement risk. Furthermore, deliveries of shares must be in a dematerialized form.

Who Regulates the Market?

The Securities and Exchange Board of India is a non-statutory body under the Ministry of Finance, Government of India. The SEBI is given the authority and responsibility of developing and regulating the markets. Its goals include protecting investor interests, expanding the stock market, and regulating its operations.

Conclusion

The stock market can be confusing, with several things that need consideration. However, the ones looking to excel at trading and investing must understand it in as detail as possible. It is an effective way to build on your capital, given that you have adequate knowledge.

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