How does the Stock Market work?

The stock market has always been a place for people to invest. As a beginner, I always wondered how the market works?

You can get insight regarding the stock market here.

The stock market is considered a monster because of it’s size and complexity, which even scares people to such an extent that they fear to take their first step in the market.

Do you find the same and is anxious to know how to stand forthrightly in this web?

Does it really feel like a place of a game of chance or we can really understand its function and take consciously calculated steps?

It’s time to dig into some elementary functioning of the stock market. Here  I will be justifying the way market functions and as an investor what you can do to match the pace of the market.

Stock Market

A stock market is a huge organized marketplace where a massive amount of cash flows every day. The money involved in trading is even more than the total quantity of products and services produced in the entire world economy, in a single year.

It is a marketplace where not only goods or services are sold rather company’s securities are bought and sold which are coined as stocks or shares.

 All of this happens with the help of stock exchange and stock brokers, who play a significant role in the collective sale of equities.

Stock market form a global network of investors, brokers and stock exchange for execution of trade orders.

There are thousands of companies and innumerable traders and investors, who are needed to be controlled centrally for trade to execute. Stock Exchange fulfills that gap by providing a platform for companies to enlist their name and make transactions possible through a stock broker who aggregates millions of investors in the exchange.

So what really happens once you raise a trade call?

Here it goes like this:

You as an investor have to raise a buy call for the company whose stocks you would like to get, to your stock broker. The broker then sends the request to the stock exchange where system finds for similar sell order to settle the deal.

Was this digestible…? Ok, let me break it further..

As you raise a buy call with your broker similarly there are people who want to sell the same shares and raise a sell call to their broker. The transaction gets settled when share prices of the buy-sell order get matched, regardless of the identity of buyer and seller.

The buy-sell is matched once the seller and buyer desire to sell-buy the same company shares and the deal is finalized when both agree with the same price for the transaction.
The complete transaction is done with help of brokers of two parties on a common platform of stock exchange.

Example

Let me drive you through an example:

Consider a situation wherein you are sitting in Delhi( India) and need 10 shares of TATA Power each of Rs 100. You will make a buy call to your broker who will send your request to Exchange and system will wait for the same type of sell order. At the same time, one trader from Mumbai( India) and one from Chennai(India) wants to sell 5 shares of TATA power. Their broker will bring their request to the exchange and will find that there is someone to buy 10 shares for the same. Transaction settlement takes place when both of them agrees to do the transaction at Rs 100. This way without even identifying the actual buyer and seller, a transaction is settled in the exchange with help of brokers.

I guess next question what you may raise is what if there is no sell order with same price tag and company share..what happens to your trade order?

Yes, there is a provision in exchange to store your order till it gets settled on the same trading day because as the market gets closed, your order can expire.

All these proceedings take place in what we call secondary market.

Do you think the story ends here?

No…there is someone who watches each and every activity of the Stock market and keeps a track on traders.

Do you want to know who?? Click here

Stock-Market-Function

Post Author: Sushant Putatunda

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