Questions Business and Entrepreneurship

What is share market?

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The stock market is where investors can trade in different financial instruments, such as shares, bonds and derivatives. The stock exchange is a mediator that allows buying/selling of shares.

In India, the two primary stock exchanges are the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Further, there is a primary market where companies list their shares for the first time. Secondary markets allow investors to buy and sell shares issued during the initial public offering (IPO).

Few simple points to know about how the Stock Market works:

Working of the Stock Market

Before you learn the basics of trade, it is essential to know about how does stock market work? Here is its working explained in detail:

  • Participants:

    The Stock Exchange Board of India (SEBI), stock exchanges, brokers, and traders/investors

The stock exchange provides a platform for trading in financial products. The companies (listing their shares), brokers, traders, and investors must register with SEBI and the exchange (BSE, NSE, or regional exchanges) before trading.

Steps to Invest in the Indian Stock Market

  • IPO:

    The companies file a draft offer document with the SEBI. This document comprises information about the company—shares being diluted, price band, and other details. On approval, the company offers its shares to investors through an IPO on the primary market.

  • Distribution:

    The Company issues and allots shares to some or all investors who bid during the IPO. The shares are then listed on the stock market (secondary market) to enable trading. This platform is a medium offered for the initial investors to exit their share market investments. In addition, investors who failed to receive allotment during the IPO are given the opportunity to buy shares on the secondary market.


Hina Sohail

Heads up in the clouds

The share market is known merely as a place where the buying and selling of shares take place. Share market is a stock market where other than companies share, mutual funds, derivative contracts, and bonds are also traded.

Share markets are of two types, and they are:

1. Primary market- Primary share market can be defined as a place where companies list shares to create securities. New stock and bonds are listed in the Primary Share Market which is made available to the public for the first time. Initial Public Offering (IPO) is the most relevant example of a Primary Share Market. The companies who registered as an IPO is required to provide company details such as company’s working operations, financial information, its promoters, issued stocks, price band, and to list shares in the Primary share market legally.

2. Secondary market- Unlike the Primary Share Market, the investors initiate trading of shares among themselves in this field. Let us understand how trade is conducted in the secondary market with the help of an example. Consider you want to purchase shares of Amazon, to achieve this task you would have to trade with another dealer who is in a position of the concerned shares and not the parent company itself. The transactions in this market are done where an individual investor sells shares to another investor at a mutual price. Generally, the operations are done through an investment broker.

A stock market is a place where companies raise their funds and investors buy partial ownership in a business that is growing to increase their wealth. The share market is a very cautious source of investing where one has to be very careful.


An index is an integral part in share market. An index is defined as the average value that is produced by combining all the stocks and then calculating its total values. The two indexes of India are Nifty and Sensex. Trading of 50 stocks composition in NSE is known as Nifty, and 30 stocks composition in NSE is known as Sensex.

Market Participants

  • Proprietary- The examples of these participants are brokers.

  • FII (Foreign Institutional Investor) - The examples of these participants are outside companies who invest in Indian stock markets.

  • Clients- In these cases participants are individual retail investors.

  • DII (Domestic Institutional Investor) - The examples of these participants are LIC, GIC, and UTI, who undertake investment in financial assets and securities of their own countries.

The share market is from early periods, and it is an essential factor for companies to grow its wealth and make their companies visible in the stock market.

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