How Does the Stock Market Work? – Share Market Money

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About Lesson

1. Understanding Shares and Ownership

Shares are units of ownership in a company. When you buy shares, you’re purchasing a small piece of that company, making you a shareholder.
Ownership Rights: Shareholders typically have rights to vote at the company’s annual general meetings (AGMs) and the potential to receive a share of the company’s profits (dividends).
Types of Shares:
- Common Shares: The most common type. Shareholders can vote on key matters and receive dividends if declared.
- Preferred Shares: These shareholders have a priority claim on dividends but typically do not have voting rights.

2. Market Mechanics: How Buying and Selling Happen

Stock Market Transactions: When you decide to buy or sell shares, you do so through stock exchanges, like the NSE (National Stock Exchange) or BSE (Bombay Stock Exchange) in India.
Stockbrokers: To buy or sell shares, you need a stockbroker, who acts as an intermediary between you and the exchange. Brokers execute orders on behalf of their clients and charge a commission.
Orders: There are different types of orders for buying or selling shares:
- Market Order: An order to buy or sell shares at the best available price immediately.
- Limit Order: An order to buy or sell shares at a specific price or better.
- Stop Order: An order to buy or sell once the price reaches a specific level.
Stock Exchanges: The role of stock exchanges is to provide a platform where buyers and sellers can meet. Prices of stocks fluctuate based on the supply and demand dynamics within the exchange.
Price Movements: The price of a share is determined by the demand and supply in the market. If more people want to buy a stock than sell it, the price goes up, and vice versa.

3. Overview of Indian Stock Exchanges (NSE, BSE)

National Stock Exchange (NSE):
- Founded: In 1992, the NSE is the largest stock exchange in India in terms of trading volume.
- Location: Based in Mumbai.
- Electronic Trading: The NSE was the first exchange in India to introduce fully electronic trading.
- Benchmark Index: The NSE is home to the Nifty 50, an index of the 50 largest publicly traded companies in India.
Bombay Stock Exchange (BSE):
- Founded: The BSE is the oldest stock exchange in India, established in 1875.
- Location: Also based in Mumbai.
- Trading Platform: It operates a physical trading platform, although it has also moved to electronic trading.
- Benchmark Index: The BSE’s flagship index is the Sensex, which tracks the performance of the top 30 companies listed on the exchange.

Both exchanges operate under the supervision of the Securities and Exchange Board of India (SEBI), which ensures that the markets function in a transparent and fair manner.

In summary, the stock market functions as a place where investors can buy and sell ownership in companies, with the help of stockbrokers and exchanges, allowing prices to be driven by market forces. The NSE and BSE provide platforms for this process, helping companies raise capital and offering investors opportunities to grow their wealth.