Basic Introduction of Stock Markets

What is the Stock Market?

A Stock Market, Stock Exchange, or Share Market is a place or market where securities like common shares, bonds of public limited companies are bought and sold. So, basically, there is a buyer and a seller for every stock that is traded. In public limited companies, the ownership is not limited to the promoters and primary investors. Even the general public like you and I can become owners by purchasing the shares of these companies in the Stock Markets.  

There are about 60 stock exchanges in the world. The US stock markets themselves account for 46.2% of the total market capitalization of the world. The total market capitalization (value) of stock markets in the world as of September 2022 was 111 trillion dollars. The most famous stock exchanges are NewYork Stock Exchange, London Stock Exchange, Hong Kong Stock Exchange, Shanghai Stock Exchange, Tokyo Stock Exchange, etc.  

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Important Stock Exchanges in India

In India, the two most important stock exchanges are National Stock Exchange(NSE) and Bombay Stock Exchange(BSE). NSE has the largest volume of shares traded in a day. Whereas, BSE is the oldest stock exchange in Asia.

For most of us, NSE and BSE may look alienated, but you will be astonished to find out the turnover of Stock Exchanges. The total turnover of all shares traded in the NSE in the year 2022 is around ₹140 lakh crores, about 8 times larger than Reliance Industries, the largest company in India with a market capitalization of ₹17.23 lakh crores in December 2022.

We can only imagine how busy these stock exchanges are daily. Millions of traders participate in trading in the exchanges every day involving hundereds of millions, sometimes, even billions of trades in a single day. 

How it works

Nowadays, everything is electronic in nature. A person sitting at home with a laptop on his or her lap, can buy or sell a share. All this works on the network of the gigantic electronic trading platform.

But this was not the case centuries ago for the stock markets in the 18th century. People had to visit the stock exchange locations. They had to buy and sell the shares on a trading floor through an open outcry method. A stock exchange person would be crying out aloud the bidding price of a share. The desiring investor or trader could buy it for an acceptable price; it completes a single trade.

Shares are ownership interests in a company. Companies register with stock exchanges and trade their shares. Stock exchanges act as markets for the transaction of shares and other securities. The companies raise the capital required for their operations through the sale of their shares in the stock markets.

Other important data

Investors and Traders like to transact (buy or sell) their securities in the most popular exchange as the number of buyers and sellers is high. For example, NSE is busier than BSE in terms of daily trade volume. In terms of the total market capitalization of companies listed, BSE is the largest stock exchange. The prices of shares oscillate depending on demand and supply. The share price increases in the case of more buyers than sellers and vice versa. 

The Sensitivity Index or Sensex is the flagship index of BSE with 30 most traded large-cap companies. Whereas, National Fifty or Nifty 50 is the main index of NSE with 50 most traded companies. The Securities Exchange Board of India or SEBI, a statutory body of Government of India, regulates thestock markets and listed companies.

The participants in a stock market ranges from small retail investors to large institutional investors, like mutual funds schemes, banks, insurance companies, etc.

This is the most basic information on stock markets. In the upcoming articles, we shall discuss advanced topics like securities, market participants, stock market behavior, etc.

Disclaimer: 

I provide the information and my views on the website only to educate new investors, stock market enthusiasts, and the common public on equity or stock market investments. Please consult your financial adviser before making any investments in the stock market. In case of any queries, you can contact me via email id or Contact Form.