Month: November 2016

How does the share market function?

While we all know what a stock market is and this where all the shares are traded, however, many are still unclear about how it works.

To begin with, a stock market is where all the financial instruments such as derivatives and stocks are traded. Be it the broker, the company that issues shares, investors or the traders, all of them need to first register with the stock exchange as well as Securities and Exchange Board of India.

share-market-function

The company who issues shares is listed through IPO, i.e. Initial Public Offering in the primary market such as ICICI bank share price, SBI share price, and share price of other banks and companies. All the details about the company as well as the number of shares to be issued are mentioned in the offer document. The stocks are then allotted to the investors as per the bid.

Once the stocks have been listed, they can then be traded in the secondary market. There are many brokerage firms as well as brokers who play the role of intermediaries between the investor and the stock exchange. When you place an order with the broker, he then forwards it to the exchange which in turn checks for a share sell order matching with the same share.

When a particular price is decided upon by the seller and the buyer, the order is confirmed by the exchange and hence communicated to the investor’s broker. The exchange also ensures that both the buyer and seller, do not default. After this is done, the ownership of the shares is then transferred which is called as settlement.

Once the order has been placed, there cannot be any cancellation. Therefore, it is very important to think, analyse, and decide in order to place any order in the stock market. The trade that has been confirmed has to take place as it is a question of sanctity on behalf of the stock exchange.

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