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Home Market What is the Stock Exchange and How Does It Work?

What is the Stock Exchange and How Does It Work?

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A stock exchange market facilitates a transaction between financial instrument traders and targeted buyers. The stock exchange operations rely on a set of rules directed by the SEBI. They are the authoritative functions protecting the investor’s interest and promote the stock market.

Related Post: Things to Know and Do before Investing in stocks

What is the Stock Exchange?

The stock exchange serves as a market to trade bonds, stocks, and commodities. It is a platform bringing together the buyers and sellers to trade financial tools. There are specific hours to do trading under well-defined guidelines.

Trading of stock exchange operations not listed on the stock exchange will not be high in esteem. But the trading will take place as Over the counter.

How does the stock exchange work?

The stock exchange works independently in India.  The trading process is an order-driven electronic limit book. The orders are set-up automatically matching the trading computer. It matches the market orders with the investors as suitable limit orders.

The benefit is it facilitates transparency of the transactions by publicly displaying all market orders. The simple answer to how does the stock exchange work is that it operates as an auction house. The stock market allows sellers and buyers to make trades and negotiate prices.

The stock exchange is a place where the companies list their shares through IPO (initial public offering). The investors buy those shares, allowing the company to grow its business by raising money. Investors buy and sell the stocks as per the exchange tracks against each listed stock. It sounds complicated, but the price-setting calculations are computer algorithms.

Also Read: How to increase revenue for small business 

Share Markets Types

There are two share markets types:

# Primary Share Market

Initial public offering

Here the companies register to issue their shares and to raise money. It is the process of listing on the stock exchange. The aim is to raise money, and if they are selling shares, it is known as IPO (Initial public offering). Thus, the company is a public entity.

# Secondary Market

buy and sell stock market

Here the company shares are for trading as the new securities come for sale. It allows investors to exit. They can sell their shares and walk away. These transactions taking place here are known as trades. Here the investor’s activity is to buy and sell from each other at an agreed price. If you need assistance, a broker can help. He is an intermediary facilitating the transactions.

What are the stock exchange operations?

To know about stock exchange operations, you must know how does the stock exchange work.

  • Understand the stock exchange platform

A stock exchange platform conducts the financial instruments trading. The participants must register with the stock exchange and SEBI to conduct trades. The activities of the trading are issuing of shares by the companies and brokering.

  • Company listing in the primary market

The listing of a company is a process as Initial Public Offering. Here the company lists its details about the issuing stocks. The stocks allotment take place while listing and investors bidding get the share of stocks.

Also Read: Top Five Startup Companies to Invest in the Stock Market

  • Secondary market trading

If the listing and issuing of company stock are complete, the investors can trade it in the secondary market. It is the marketplace for sellers and buyers to transact and earn or lose profits.

  • Stock Brokers

The investors are more in magnitude, thus conducting trade becomes difficult, and the brokerage firms are in this picture. They have registration and act as intermediaries between the exchange and investors. The broker processes the share an investor wants to buy at the exchange.

  • Passing the order

The broker receives the order passing, and it matches the same sell order. This exchange takes place on agreeing on a price as the buyer and seller agree. Thus, the order comes to finalization.

  • Settlement

The exchange confirms the details ensuring, no default transaction. It facilitates shares ownership of transfer known as a settlement. You get a message, and it reflects in your Demat account within two working days. Thus, the stock exchange operations take place effectively.

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