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What is the Process in which Share Market in India works?

Let’s understand with an example, we go to the market to buy vegetables & fruits, whatever you buy you pay the money to the vendor, which is the essential items. In a similar way, the share market works but the real difference is that the share market is for investment purposes where the main goal of the people is to make huge money through investment.

So whenever you buy a company’s share from your money, whatever be the price of share that company has decided, the company gives you a position, partnership in the form of share, which is a kind of virtual partnership. These shares exist in millions to billions in number. Earlier these shares came physically in the form of printed material direct to your home. But nowadays it is in the form of virtual. 

It is right that you can earn a huge amount of money in one day, up to 20 to 30% but also people make huge losses because of their little knowledge or you just came here by seeing other people profit. So it is advisable to calculate gains & loss in stock market before entering into market.

If you don’t know the ABCD of Stocks you can watch my previous videos where I have shared the basics of the stock market. Where all your basics will be cleared so that you can understand this video clearly. You can visit my YouTube channel Finance Breakout.

So, let’s understand from where we can buy the share, or how does the share reach the user? And also, whenever we sell shares where does this go? 

How does an IPO come in the Share Market?

So, let’s understand this concept, there are two condition 

First, is the concept of IPO, and the Second once the IPO comes whatever shares we buy what happens here.

IPO means Initial Public Offering When a company comes for the first time and tells people to buy their shares and give them money.

For More Details about the IPO, You can visit financialbreakout.com, where you can deeply understand the IPO.

Let’s Suppose, by taking Examples,

Company Called Zomato wants to raise its capital through an IPO. If there are 10,000 shares and per share price is around 1000 Rs. So total Capital raised will be 10000*1000= 1 Crore.

For this to happen Zomato Went to SEBI, Securities & Exchange Board of India, which is the Regulatory Body in India. Get more information about this in my YouTube videos. 

For this company to go to SEBI to take approval for the IPO, he fills all the documents related to this. SEBI Maintains everything from company IPO to checking users. 

You can see here that these are the company IPOs that are listed and these companies who have reached SEBI for Listing their IPO on the Exchanges. 

After Approval, the Company is ready to sell its share to the Users, but can the company sell its share directly to the user. NO, at this point Concept of exchange comes into the picture. 

In the previous video, you can learn more about the Different Types of Exchanges that are NSE & BSE. Exchange is responsible for this transaction process. Where companies ask exchanges to sell their stocks and then raise the capital and give that capital to the company. Since the documentation is cleared from SEBI so the company can decide the price per share.

Now what Exchange does, it will also not directly sell shares, instead welcomes Depository Participant to serve this service on behalf of Exchanges. There are many DP in the market such as Zerodha, Angle Broking, 5 Paisa, Upstox. And these DP will reach out to users through their website & mobile apps to buy & sell the stocks. There are more than 15000 approved DP in India working under NSE & BSE.

The user has to open/Register on these DP by opening an account which is called Trading Account. So, once the trading account opens user can buy or sell the sell. So, you can see there is a leased line connection or security connection between NSE/BSE.

Suppose a user wants to buy shares, so it will apply their bid through DP and DP will reach out to Exchanges and exchange will reach the company. All these processes are linked with a secure connection.

When the company release this share to NSE/BSE, these exchanges give that to DP but wait how can these shares be given to USERs

Demat Account Concept

Where can users deposit their shares virtually? Now the concept of Demat Account comes. 

Who opens this Demat account? Each individual user has to open the Demat account and these are monitored by the government through CDSL (Central Depository Services Ltd). Also, these are monitored by SEBI. Even if all the exchanges and the Depository get closed user’s Shares are saved and secured in the Demat account. 

These DP will also help users to open their Demat as well as Trading Account simultaneously at the same time and also link your bank account for depositing the money or withdrawing the money from your saving bank account. You can also directly open the Demat account, but users have to link that account with the trading account in order to trade on their platform. 

So, overall You cannot directly reach Exchanges to buy or share the stocks, you will have to open a Demat account. For opening Upstox and Zerodha Accounts, you can check the Description where I have provided the direct link. 

Overall there are three things necessary for trading in stocks

  1. Bank Account
  2. Trading Account
  3. Demat Account

All the process is well maintained by SEBI from company to user, from Demat account maintenance to DP transaction. 

Once the Company raises funds or capital for the share they don’t need to return that money to users again. After this company moves away from this process, and How the money has to be spent is all decided by the company. 

Buying & Selling of Stocks

share market

After selling All the shares, each individual has some shares in their Demat account, now whenever one user wants to sell their share and some user wants to buy some share, they will not reach out to NSE or BSE or company again. They sell/Buy within themselves with the help of DP.

DP First checks your Demat account and then finds a suitable buyer/seller based on the user’s intention of buying and selling. This process takes place within micro or mini seconds through their trading software.

In this way, buying and selling of stocks take place inside the DP.

Stock Price Fluctuation based on Demand & Supply

Suppose one user wants to sell their 1000 stocks and one user wants to buy 500 shares. So, you can see here the supply is more and demand is less. This means the price of a share may fall and vice versa happens when the user sells less shares as compared to buying a stock. 

Once the trade happens the buyer gives money to the seller while buying and the seller gets the money from the buyer. This process takes place continuously and the price gets increased or decreased based on the demand and supply.

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