What is the Stock Market?The market in which shares are issued andtraded either through exchanges (NSE, BSE,NASDAQ, Hang Seng etc.) or over-the-countermarkets.
Functions of the Stock MarketStock market plays a pivotal role in the growth of the industry andcommerce of the country that eventually affects the economy of thecountry to a great extent. That is reason that the government,industry and even the central banks of the country keep a close watchon the happenings of the stock market.• Primary functions – The stock market is the primary source for any company to raise funds for business expansions. If a company wants to raise some capital for the business it can issue shares of the company that is basically part ownership of the company. – The stock market is primarily the place where these companies get listed to issue the shares and raise the fund. In case of an already listed public company, they issue more shares to the market for collecting more funds for business expansion.
Functions of the Stock Market (Contd.)• Secondary functions (Secondary Market) – The market plays the role of a common platform for the buyers and sellers of these stocks that are listed at the stock market. It is the secondary market of the stock exchange where retail investors and institutional investors buy and sell the stocks. It is these stock market traders who raise the fund for the businesses by investing in the stocks. – For investing in the stocks or to trade in the stock the investors have to go through the brokers of the stock market. The brokers act as a middle man between the buyers and sellers. Once the buyer places a buy order in the stock market the brokers finds a seller of the stock and thus the deal is closed. – It is the demand and supply of the stock of a company that determines the price of the stock of that particular company.
Cash Market• It is also known as the “Equity Market” or the “Spot Market”.• It is the type of market in the stock exchange where participants can buy and sell shares of a company, assets and commodities based on immediate payment that is equal to the market price.• The seller, after receiving the payment, relinquishes all claims to the property and hands over full ownership to the buyer. In most cases, transactions take place primarily on the internet.• In India, the market session takes place between 0900 hours and 1530 hours.
Derivatives Market• The derivatives market consists of financial instruments such futures contracts or options. Their values are derived from the other forms of assets.• Futures exchanges trade in standardized derivative contracts. These are “options” contracts and “futures” contracts on a whole range of underlying products.• Futures traders hold positions in these contracts with the exchange, who act as the counterparty. If one goes long (buy position), the other will go short (sell position).
Derivatives Market (Contd.)• Other types of derivatives products include forward contracts and swaps. They are considered to be Over-the-counter (OTC).• The OTC market consists of traders making exchanges between themselves separate from the exchange. It is non-standardized and is decentralized.
Players of the Stock Market• Stock Market Exchanges (e.g. National Stock Exchange, Bombay Stock Exchange)• Governing Body (e.g. SEC, SEBI)• Foreign Institutional Investors• Depository Participants• Merchant Banks• Underwriters• Brokers• Traders/Investors
Common Terms• Bear Market: A period during which security prices in a particular market (such as the stock market) are generally falling.• Bid or Sell Price: The price at which a mutual fund’s shares are redeemed, or bought back, by the fund. The bid or redemption price is usually the current net asset value per share.• Broker-Dealer (or Dealer): A firm that buys and sells mutual fund shares and other securities from and to investors.• Bull Market: A period during which security prices in a particular market (such as the stock market) are generally rising.• Stock: A share of ownership or equity in a corporation.• Shareholder: An investor who owns shares of a mutual fund or other company.
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