How Stock market work

What happens when you buy or sell a stock?

Who facilitates the transaction?

You won’t believe how simple the stock market is after reading this article.

There are two types of a market which is as follows.

• Primary market
• Secondary market

1. A primary market is a place where initial investment takes place.
2. A secondary market is a place where buying and selling of stock take place.

Let's assume Alpha ltd wanted a fresh investment of 10 crores from the equity market so they have to choose a brokerage such as an angel broking(I'm a sub-broker at angel broking)the brokerage firm will value the stock price of the company and the number of shares required for 10 crores now let’s assume that the price for the initial public offer, is 1000 and the minimum investment is 50000. That means Alpha ltd will issue 1 lakh shares in the primary market for sale which will trade later in the secondary market. This is quite basic what people don’t tell everyone is that a company does not list all the stocks on a stock exchange for trading, For example, Alpha ltd total valuation is 30 cr and they are selling 30% of their stake in the primary market that means that 70% of the stocks of Alpha ltd are non-tradable stocks. Companies sell these stocks in block trade, rights issue, I will be writing about these trade set up in the future.

Only 36% of stocks are available for trading in the stock market of all the companies listed.

How do trades happen? who facilitate?

 Stock exchanges are just like a market place where buying and selling happens we have NSE, BSE, MCX, etc.

These stock exchanges have many members who facilitate trade.

The types of stock exchange members are as follows.

All markets function similarly.

 The types of trading members you see you read above are available in every market and if you are not aware of the wholesale market the allow me to explain.

Suppose Sadar bazaar is NSE where buying and selling different goods takes place.

All the shops that are in Sadar bazaar are companies that want to sell their stocks.

• If u have ever been to a wholesale market you would have met an agent who tells u that he/she knows the best shop in the market these agents are brokerage firms who identify the best stocks for their customers and charge a little fee which is dubbed as brokerage.
• But there are small agents and big agents in the market, an agent who not only tells you which is the best shop to buy from but takes ur order look for the particular product and find a seller. These are trading cum clearing members. When a person wants to buy 100 shares of tata motors that order is given to a stock exchange and every stock exchange has a clearinghouse that takes a buy order and matches the same order with someone who wants to sell 100 stocks of tata motors at a given price. for example, Ashok wants to buy 100 stocks of tata motors at 100 from Delhi and Shital wants to sell 100 stocks of tata motors at 100rs and both of them are registered with different broking companies then it is up to the clearinghouses to match and execute the order.
• Trading cum self-clearing members are the people who execute the trade within their boundaries.
• Then we have direct market access mutual fund managements and large investors don’t register with any brokerage they can directly buy or sell through direct market access. That means they give their buy and sell orders to stock exchanges.

Now u know who are the market participants and whats their role.

Thank u for reading.