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How does the stock market works ?

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How does the stock market work ?
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The stock market works is like a group of exchanges where securities like stocks and bonds are sold and purchased. In the United States, “the stock market” and “Wall Street” means the entire world of securities trading—which includes stock exchanges where the shares of public companies are listed for sale and markets where other securities are dealt.

It helps companies increase money for funding operations by selling stock shares, and it creates and supports wealth for individual investors.

Companies invest money on the stock market by selling proprietorship stakes to investors. These stakes are called shares of stock. 

Share market works in the following ways:

1. A company gets listed in the primary market by an IPO.

2. Shares get distributed in the Secondary Market

3. The stocks issued can be traded by the investors in the secondary market.

4. Stock brokers and brokerage firms are organisations which are registered with the stock exchange that offers you to purchase a particular share at a called price.

5. Your broker passes on your buy order to the exchange, which searches for a sell order for the same share.

6. The process takes 2 days i.e. you will get your deposited shares in your demat account within 2 working days.

The stock market is one of the largest paths for investment. As many as Rs.6 lakh crore-worth stocks have been dealt in the two stock exchanges in India on some occasions. Stock market investing is sometimes called a gamble. It would halt to take risks if you understood the basics of the share market.

By registering shares for trade on the stock exchanges that make up the stock market, companies get access to the capital they need to operate and expand their businesses without having to take on debt. As for the benefit of selling stock to the public, companies have to show business information to investors and give shareholders the way that how their businesses are run.

Investors’ well being by swapping their money for shares on the stock market. Companies use that money to  grow and expand their businesses, investors gain benefits as their shares of stock become more valuable over time, leading to capital gains. In the end, companies pay dividends to their shareholders as their money grow.

Thestock market works of individual stocks differs ,but taken as wholly the stock market has historically rewarded investors with average annual returns of around 10%, making it one of the most conclusive ways of growing your money.

Purposes of the Stock Market works– Capital and Investment Income

The stock market has two very important purposes. 

  • It is to provide Capital to companies which can be used to fund and grow their businesses. If a company provides 1 million shares of stock that initially sell for $10 per share, then that provides the company with $10 million of capital that it can use to grow its business (deduct whatever fees the company pays for an investment bank to manage the stock offering). By offering stock shares instead of borrowing the capital needed for expansion, the company avoids incurring debt and paying interest charges on that debt.
  • The stock market serves to give investors – those who purchase stocks – the opportunity to share in the profits of publicly-traded companies. Investors can profit from stock buying in one of two ways. Some stocks pay regular dividends (a given amount of money per share of stock someone owns). The other way investors can benefit from buying stocks is by selling their stock for a profit if the stock price increases from their purchase price. For example, if an investor buys shares of a company’s stock at $10 a share and the price of the stock subsequently rises to $15 a share, the investor can then realize a 50% profit on their investment by selling their shares.

Who Regulates Stock Markets in India?

Securities and Exchange Board of India (SEBI), established in 1992 .It regulates and monitors stock markets in India. Together with the overall administrative control of stock markets, SEBI is also entrusted with the role of conducting inspections and formulating rules for stock markets.

How are Stock Market Returns Calculated?

There are two methods to calculate market returns:

  • Absolute Return Methodology: Here, variables containing purchasing price, selling price, returns and return percentage are used to calculate returns.
  • Compounded Annual Growth Methodology: The returns are calculated after taking into account the overall time period. Market experts prefer this methodology over the former.

What Next

Now, we have understand how the Stock Market works . So let us focus on next topic that is Types of Stock Exchange , NSE and BSE and also internationally Stock Exchanges

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