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How Stock Market Works in India

There are various modes of earning money via stock market. Some are direct earning, in which an individual directly comes in contact with the end user or customer to sell a product or service and the other one is indirect earning in which the individual earns royalties or passive incomes on rent.

If we look at the scenario today, Fixed Deposits give average 7% returns, Debt Fund gives around 6%, Real Estate gives 5%, Gold gives you an average of 5% returns, Savings account gives an average of 3-4% and Current Account gives 0%.

But on the other hand, Mutual Funds and Share market give you an average of 12-18% returns. And this is why many people are interested in learning stock markets seriously and taking it forward in their professional lives.

So, let’s see how the stock market works in India for a better understanding for beginners.

The Indian Stock Market is divided into two major stock exchanges:

 

Bombay Stock Exchange and National Stock Exchange

The Bombay Stock Exchange is the oldest stock exchanges in India that was established in 1875. On the other side, in the year 1992, the National Stock Exchange came into existence that was started in 1994. The Bombay Stock Exchange has around 5000 firms listed in it and the National Stock Exchange has around 1800 firms in it. Along with this, the Bombay Stock Exchange is single handedly the only stock exchange that has 500 firms which have more than 90% market capitalization.

How does trading work

So it may seem fascinating how the prices and those numbered figures are displayed in green and red color. And you may ask how are these numbers portrayed and on what parameters are the numbers reflected.

So, the exchange takes place in an open electronic limited order mechanism which means that the individuals who are interested in buying the stocks of a firm can buy a limited part of it. The entire process that takes place during the buying and selling is order driven which means that the market orders placed by investors are automatically matched with the best limit orders.

Once the buyers and sellers are matched, a confirmation is sent to both the parties to avoid any mishaps and defaults. After this, the seller trader receives the funds and the buyer trader gets to receive its shares in the firm.

Earlier, the process used to be manual, therefore the time taken was drastically more. But today, the entire process has been shifted to online and thus the time taken to buy and sell shares is reduced.

Now comes the payment of fees for the whole process. So the fees is paid by both parties – buyer and seller to the stock exchange, broker or government regulatory bodies through which they are transacting. 

 

How do the prices of the stocks change?

So this is one of the most asked questions to us – how do the prices of stocks change? Suppose you want to buy the stocks of Reliance and the price of the stock is Rs 580. And now suppose that the Government of India extends its support to Reliance Industries by giving a project to them that is worth, say, 10,000 crores.

So today, everyone would start searching for Reliance company and start buying their stocks. So, by now the price of Reliance would be 590 and as the project would end, the company would itself be in a lot of profit and hence the value of the stock would be increased.

Prices of the Stocks Change?

Well this is not just all. During the same situation, there can be other things to be considered. For example: Whether more people are interested in buying the shares of the company or selling it after a point. So if more people are selling the stocks, then most probably, the share price will automatically fall down (in most of the cases). Therefore, the chances of your money getting dumped increases. 

Just like any other business or business model, the stock market also possesses a risk. But at the same time, stock market is also rewarding. If the strategies are applied well, you can expect big returns and take trading as a full time business. It is very uncommon for the stocks to face sudden dips.

But in such cases, an index fund can help you out. An index fund is a type of mutual fund which is almost always a safer way to invest and trade. This fund is called an exchange traded fund. It is one of the best ways to build a diversified portfolios. A diversified portfolio helps you during market ups and down. Academy of Trading is a best best stock trading course academy in Delhi.

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