Question

A market is a place where the buyer would meet the seller and perform transactions. Explain the workings of the “share market”.

Answer 1

Stock markets operate much like an auction house. Stock market enables buyers and sellers to negotiate prices and enter into transactions. Companies can list their equity shares, debt, bond etc. on a stock exchange through a process named initial public offering, or IPO.

Stock markets are secondary markets, where existing owners can sell their shares to buyers. It is important to understand that the corporations listed on stock markets do not buy and sell their own shares. All the shares being transacted on the market is between owners of the stocks and potential buyers.

There are various intermediaries who plays role in market and important ones are-

1. Broker- a person willing to transact on stock market, needs to open a dematerialised account with broker. Through broker, they can place order for buy or sale at a price reflected on electronic trading platform on stock markets. Brokers are vital cog in stock market functioning

2. Stock markets- Provides the electronic platform for finding real time price of the shares

3. share transfer agent- they ensures that settlement of shares takes place within due time.

4. Depositories- they are like banks. They hold the securities for the buyers and release on receiving sells instruction.

In stock market, one can see price online and place an order through buyer and seller. price are purely determined based on the buy-sell similar to equilibrium in economics based on demand-suppky.