This article is based on What is Share market & How it works. We will discuss everything about share market and its components.
Share market is a platform where investors invest in various financial instruments, including shares of companies, bonds, futures and derivatives. And a large number of traders buy & sell shares and trade them.
Irrespective of your choice of investment, the share market is more than equipped to offer you the ideal instrument and immense opportunities to make profits.
The share market is a component or a platform 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, make profits through capital gains, and earn income through dividends.
Before entering into market let’s understand common aspects of market.
Primary share market: This is where companies or businesses register themselves and list for the first time. Companies enter the primary share market to raise funds by offering their shares to the general public. When a company lists itself in the primary share market and offers to sell its shares for the first time, it is known as Initial Public Offering (IPO). Here, you must understand that shares are a physical representation of a small value of the company, and owning the shares means that you are a part-owner of the company in the proportion of the shares you hold.
Secondary share market: After the company lists in the primary market, the actual trading of a company’s shares occurs in the secondary share market. After a company’s shares are listed on a stock exchange, investors can trade, i.e., sell or purchase the shares through a broker. In the present digital age, you can easily open a Demat Account and a Trading Account, following which you can effectively trade in stock markets via broking platforms.
Who Regulates Share Markets:
In every country there are exchanges who control the share market of following country.
Like in US The Securities and Exchange Commission (SEC) is a U.S. government oversight agency responsible for regulating the securities markets and protecting investors. NYSE American is an exchange designed for growing companies. London stock exchange is for UK companies in London city. Australian stock exchange (ASX) is for Australian companies . Every country has a specific stock exchange & a index that show the growth in economy of particular country.
In india Securities and Exchange Board of India (SEBI) regulates the stock market, the stock exchanges and the Depositories Participants in India.
Who are stock broker and their work
Stock brokers are financial intermediaries who enable investor and trader to buy and sell shares by providing the service of opening a Demat account and trading account.
For the service, they charge a small brokerage fee. Stockbrokers/brokerage firms are registered with exchanges and act as a link between the investor and stock markets.
When people talk about how the share market is performing, they mean the thousands of public companies listed on multiple stock exchanges. Generally, the stock market can be thought of as encompassing a very broad universe of bonds, mutual funds, exchange-traded funds (ETFs) and other securities beyond just stocks.
What is index in share market
The stock market index track performance of a group of company that represents a particular industry or segment of the stock market, like the technology, energy and transportation sectors.
In the stock market, indices serve as benchmarks or indicators of the overall performance of a particular segment or the entire market. Here are some common indices that investors often look at:
- S&P 500: This index tracks the performance of 500 large-cap stocks listed on stock exchanges in the United States. It is widely regarded as one of the best indicators of the U.S. stock market’s health and is often used as a benchmark for portfolio performance.
- Dow Jones Industrial Average (DJIA): The Dow Jones Industrial Average consists of 30 large-cap stocks representing various sectors of the U.S. economy. It is one of the oldest and most widely followed indices, providing insights into the performance of key industries and companies.
- NASDAQ Composite: The NASDAQ Composite index includes more than 2,500 stocks listed on the NASDAQ stock exchange, encompassing a broad range of sectors such as technology, healthcare, and consumer services. It is often used as a barometer for the performance of technology and growth stocks.
- FTSE 100: This index tracks the 100 largest companies listed on the London Stock Exchange by market capitalization. It is a key indicator of the UK stock market’s performance and is closely watched by investors both domestically and internationally.
- Nikkei 225: The Nikkei 225 index represents the performance of 225 blue-chip stocks listed on the Tokyo Stock Exchange. It is the most widely followed index in Japan and provides insights into the health of the Japanese economy.
- DAX: The DAX index tracks the performance of the 30 largest and most liquid companies listed on the Frankfurt Stock Exchange in Germany. It is a key benchmark for the German stock market and serves as a gauge of economic sentiment in Europe’s largest economy.
- Hang Seng Index: This index comprises 50 of the largest and most liquid companies listed on the Hong Kong Stock Exchange. It is widely used as a barometer for the performance of the Hong Kong stock market and is considered a key indicator of economic activity in the region.
- Sensex: The Sensex is one of the oldest stock exchanges of India. It comprises total value of 30 stocks of companies which are listed on the BSE. Indeed, these stocks belong to the largest corporations in India and, thus, represent the Indian economy’s performance at large.
- NIFTY 50: The NIFTY 50 is the flagship index of the National Stock Exchange and one of the most recognized stock market indexes of India. It tracks the total of 50 stocks of huge companies related to various sectors and industries. The NIFTY 50 based stocks are all large-cap oriented companies which form almost three-fourth of the total capitalization in India.
- BANK NIFTY: This index comprises of all major Banks in India. It tracks performance of banks that are listed on NSE, like SBI, HDFC, AXIS BANK, ICICI BAK, KOTAK BANK ETC.
These indices provide investors with a snapshot of market trends, investor sentiment, and economic conditions, allowing them to make informed decisions about their investments.
Understanding the pricing mechanism in the share market:
Every business in this world work on Demand & Supply of particular product. However, The stock market also works on demand & supply of companies shares values. When a company makes good profit and do growth than demand of particular company shares increase and in result price of shares increase. There are customer through brokers who buy and sell those shares and make money.
After the company shares listed on exchange, they started trading price of shares move up and down by supply and demand of that shares on exchange. If there is demand for shares than price will go up and if supply is more than demands of share price go down. Thus price go up-down of shares
Why company need to listed shares on exchange.
Companies needs more money when a company expand his business. At such time, companies approach the share market to offer a certain number of shares based on their company market value that investors can purchase. Investors pay some money to company and in return they get shares of that company and became a part of company.
When price of shares increase than value of money increase of investor and investor make good profit by selling those share to company.
So in this way there are buying -selling of shares, and if anyone know about science behind the stock market, he can make good profit and make a good business individual.