An Introduction to the Stock Market

By Investor / Published on Thursday, 16 Feb 2017 09:33 AM

The stock market is a market where buying and selling of the equity instruments, debt instruments and other financial instruments (futures and options) take place. The stock market is the trading platform for the investors.

The stock market has two main platform namely stock exchanges sometimes also know as primary market and the other platform is over the counter (OTC) market occasionally also known as a secondary market. The stock market also termed as equity market.

The stock exchange is the marketplace where the companies that are listed on the stock exchange float their shares initially to the general public through initial public offering (IPO). That’s why the stock exchanges are known as a primary stock market. For floating the shares through stock exchanges, the companies’ needs to register with the concerned stock exchanges and the other market participants including the brokers, investors and traders also need to register with the stock exchanges for executing the trading transactions. Stock Exchanges are regulated and controlled by regulatory authorities of the state. The stock exchange is the centralized place of executing the trading transactions. In view of the fact that the stock exchange is the counterparty in all trades that remove the risk of the trade. As all the trades executed from one single platform this thing is to serve as the equality for all investors or traders relating to the prices quoted for the trading securities.

The secondary market is the market where securities can be traded after being issued in the primary market. The name of secondary market infers from the re-issuance of the already issued securities in the primary market. In the secondary market, everyone can buy and sell the stock.

The investor, who purchases the shares or any kind of security from the primary market, can sell the security in the secondary market. The price of the security in the secondary market is not as quoted at the time of issue or its face value. The price of the security depends on the market conditions and the performance of the security during the trading session. The company that issued the security is not a party in the trade. In the secondary market, an investor usually opens an account with the broker for trading purposes and makes purchase or sale of the security through the brokers by paying the commission. In the secondary market, an investor buys or sells the stock with another investor.

Stocks are issued by the companies to raise the capital for financing the affairs of the company and the stock market provides the route for participating in the company by the purchase of these issued shares. Investors purchased shares for making the money through the company’s growth. Investors held the stocks either for trading purposes for the sake of making a profit through capital gains or for earning the dividend income. A stock that has high volume is very appealing to the investors because it can be easily bought and sell in the market at any time.