Stocks: Share Market, How NSE & BSE Works & How to Invest in Shares

What is a share market? 

The share market is a place where shares are traded. The share of a company represents a part of ownership in its business. And a share market, therefore, helps investors enter into buying & selling transactions of shares by providing a common market place. These markets facilitate investments by domestic, institutional as well as foreign investors.

Share markets can be divided into two types: primary market and secondary market.

  • Primary Market is the equity market where the companies issue shares for the first time. This market helps the companies & government to raise funds by facilitating the issue of securities to the public. IPO (Initial Public Offering) is a part of the primary markets. The primary market also helps the issuers with the right issue, preferential allotments & private placement of shares.
  • Secondary market is the market where the investors trade in securities that are already listed. Once an IPO is done, the securities need to be listed in a secondary market. Here, the investors purchase securities from other investors holding the stocks unlike in primary markets where the investors purchase securities from the issuing company itself.

What is NSE and BSE?

India has two important stock exchanges - the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

National Stock Exchange (NSE) - India's leading stock exchange, National Stock Exchange is the fourth biggest exchange in the world based on its trading volume of stocks. Established in Mumbai, and set up in 1992, it was India's first stock exchange to offer a screen-based trading system. The NSE successfully provides services such as trading, clearing as well as debt and equity settlements facilitating both domestic and foreign investors with the assistance of the government.

Bombay Stock Exchange (BSE) - The Bombay Stock Exchange was the first stock exchange in India as well as Asia. BSE is the fastest stock exchange in the world, with a trading speed of 6 microseconds.

How do NSE and BSE work?

The NSE and BSE trading frameworks are identical. Investors and traders connect to these exchanges for trading via their brokers, who in turn place the buy or sell orders for the investor on the exchanges. 

How to invest in shares?

First of all, along with a good internet, a trading and Demat account is required to start investing in shares. To open a Demat account, you'll need the following documents:

  • PAN Card
  • Aadhar Card (with proof of address)
  • Cancelled cheque / Bank statement / Passbook
  • Photograph (if required)
  • In any private/public Indian bank you can have your savings account.

Below are the steps to invest in the share market:

  1. First, it's necessary to identify your investment goals. Begin with end goals in mind. Know what you aim for.
  2. You will have to determine your strategies based on your investment objectives. You will need to figure out whether the lump sum (a large amount at a time) or the SIP (systematic investment plan) strategy is what you want to invest in. Analyze how much you want to invest monthly from your savings if you decide to make small,&  sporadic investments.
  3. Choose your stockbroker. Selecting an online broker is one of the main moves you need to take. In India, there are two kinds of stockbrokers - full-service brokers and discount brokers.You can choose the one as per your needs & requirements.
  4. Start doing research and make investments in stocks as per your analysis. If you like any company's business, dig deeper and find out more about its parent company, such as whether or not it's listed in the stock market, its current share price, market news, etc.
  5. Start keeping track of stocks. To track your stocks, you can simply use an excel or a google spreadsheet. In addition, you can also use a range of financial websites and smartphone applications to keep track of the stocks.

What is fundamental analysis?

Fundamental analysis is a method used by investors to determine the intrinsic value of a stock. Along with that, the investors look to analyze different factors which could influence the market price of the security. The factors could be internal (using financial statements) or external (incorporating micro & macroeconomic factors).

The market price of a stock usually does not reflect its real value and the stock price could be overvalued or undervalued at different times. Fundamental investors conduct their research & analysis of the company's underlying health along with its future outlook to figure out its intrinsic value.

What is technical analysis?

Technical analysis is the method used to forecast the possible future price movements of the security based on its historical data. It uses historical data such as price movements & trade volumes while deploying some trading techniques to come up with predicted price movements which could be used for making investment decisions.

Various Market Terminologies

What is a stock quote?

Stock quote is the market price of a stock as quoted on an exchange. A simple quote for a particular stock contains information such as its bid and offer price, last traded price, and its trade volume.

What is bid and ask price?

The word 'bid and ask' refers to the best possible price that buyers and sellers at the marketplace are able to trade at. In other words, bidding and asking refers to the best price at which to buy and/or sell a security at the current time.

Bid Price - The bid price is the price that an investor is ready to pay for the security.

Ask Price - The ask price is the price at which an investor is ready to sell the security.

What are the types of orders?

An order is an instruction provided by an investor to purchase or sell stocks at a trading platform or stock broker. Different types of orders exist in the market.

Market Order - A market order is a purchase or sale of a security at the existing market price. This command is to be executed immediately once put into action at the current market price if there are willing buyers or sellers to complete the transaction.The execution price at which the order is to be carried out will be unknown and therefore, is not guaranteed.

Limit Order - A limit order is a trade order to buy or sell a stock at a particular set price or better. A limit order protects buyers from buying or sellers from selling stocks theoretically at a price they don't like.

Stop Order - This is an order to buy or sell a stock once it exceeds a particular market price. This value is referred to as the 'stop price.' 

Cover Order - A cover order is a combination of a market/limit order and a stop-loss order which implies your order to buy (or sell) is accompanied with a compulsory stop-loss order. This order helps to reduce the risks of unexpected movements in the share prices which might cause high losses for the trader.

Bracket Order - Bracket order integrates the advantages of several simultaneously placed orders allowing you to completely automate a specific transaction or sale within a given protection. Suppose you place a market order for a stock, then once it gets executed, the system will automatically be able to place two more orders - a stop-loss order and a target or exit order. This way it could help to limit the losses and book profits by exiting the holdings at a pre-specified price.

What is a 52-week range?

The prices of commodities, currencies, and stocks fluctuate very often on account of active trading in the markets,thereby recording their highest and lowest figures at various points of time. The 52-week price is simply the highest and lowest price at which a stock has traded on the exchange in the last one year.

What is market capitalization?

Market cap or market capitalization refers to the total market value of the company’s outstanding shares in the market. It is determined by multiplying a stock's price by the total number of shares outstanding.

More Information:

What is Nifty - Meaning, Eligibility Criteria and Top Listed Companies

Demat Account - Meaning, Types, Benefits, How to Open Demat Account Online

Become Mutual Fund Advisor

Mutual Fund Distributor Commission Structure

How to Invest in Mutual Funds?

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