What is the Stock Market? How does it Work and How is it Beneficial?

Stock Market- Definition and Working
Stock Market- Definition and Working

What is Stock Market?

Stock Market is a place where shares of pubic listed companies are traded. The primary market is where companies give shares to the general public in an initial public offering (IPO) to raise their capital. It refers to several types of exchange where publicly held companies are traded. It is a component of the free economy. The definition comprises OTC markets, where investors trade securities with each other without involving an exchange.

Companies obtain funds by offering stock shares and bonds while investors participate in companies’ financial success and generate income through capital gains and dividends.

How Stock Market Work?

Whenever you are buying shares of a company means you are purchasing a small portion of that company.

The stock market operates through a network of exchanges, such as the Nasdaq or the New York Stock Exchange(NYSE), which you may already be familiar with.

The stock market is a secure and regulated environment where individuals and companies can confidently buy and sell shares. It serves as a primary and secondary market, allowing companies to raise capital through IPOs and enabling investors to buy and sell securities. The exchange maintains various indicators, like the S&P 500 and Nasdaq 100, to track the movement of the overall market. Investors expect the share value to rise or receive dividend payments or both. In exchange for its services, the stock exchange receives a fee from the company and its financial partners.

The stock market facilitates the buying and selling of stocks between investors and companies. Most trades occur between individual investors, with brokers acting as intermediaries. By buying shares of a stock, investors become part owners of the company.

What is its Significance?

The stock market is a component of a free-market economy. In a free-market economy, the stock market functions as a platform that effectively channels the savings and investments of individuals into productive investment opportunities, which contributes to the formation of capital and economic growth in the country.

Are Stock Exchange and Stock Market Same?

The stock market and stock exchange are not the same, with the stock exchange being part of the broader stock market. The stock market includes various exchanges, such as Nasdaq and NYSE, and encompasses a wide range of securities, including stocks, bonds, mutual funds, and exchange-traded funds.

Stock Exchange

Stock exchanges serve as a secondary market where existing shareholders can sell their stocks to potential buyers. Although corporations listed on stock markets may engage in stock buybacks or issue new shares, such transactions usually occur outside of the exchange framework. These corporations do not typically buy and sell their own shares on the stock exchange.

Largest Stock Exchanges (Top 10 Stock Exchanges)

  • The first stock markets emerged in Europe in the 16th and 17th centuries in cities like Antwerp, Amsterdam, and London.
  • The Philadelphia Stock Exchange (PHLX) was the first stock exchange in the US.
  • The New York Stock Exchange (NYSE) was founded in 1792 with the signing of the Buttonwood Agreement.
  • The advent of modern stock markets led to regulation and professionalization to ensure fair transactions at reasonable prices.

Today, there are numerous stock exchanges worldwide, with NYSE and Nasdaq being the two largest exchanges based on total market capitalization. Nearly two dozen US stock exchanges are registered with the Securities and Exchange Commission, most of which are owned by Cboe Global Markets, Nasdaq, or NYSE-owner Intercontinental Exchange.

Sr. NoNameMICWorthYear of Incorporation
1.New York Stock ExchangeXNYS22,6491792
2.NASDAQ Stock ExchangeXNAS18,0031971
3.Sanghai Stock ExchangeXSHG7,2651866
4.EURONEXT Stock ExchangeXAMS
5.Tokyo Stock ExchangeXJPX5,6501898
6.Shenzhen Stock ExchangeXSHE5,2141990
7.Hong Kong Stock ExchangeXHKG4,9721891
8.National Stock Exchange of IndiaXNSE3,2791992
9.London Stock ExchangeXLON3,2591801
10.Toronto Stock ExchangeXTSE3,0241861
*MIC- Market Identifier Code

How Stock Market are Regulated?

Stock markets in most nations are regulated by local financial regulators or monetary authorities, with the SEC overseeing the US stock market. The SEC protects investors, maintains fair markets, and facilitates capital formation.

The SEC regulates and monitors listed companies and must adhere to exchange requirements such as timely filing of financial reports and reporting corporate developments. Non-compliance can lead to disciplinary measures and suspension of trading.

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Why Companies Issues Shares?

Starting a business requires significant capital for leasing an office or factory, hiring employees, purchasing equipment and raw materials, and establishing sales and distribution networks. The amount of capital required depends on the size and scope of the business.

Startups can raise capital through equity financing by selling shares to friends, family, angel investors, and venture capital firms. They can also access significant wealth by listing shares on a stock exchange through an initial public offering (IPO). Once listed, stock prices fluctuate as investors assess their value, with popular measures including the price-to-earnings (PE) ratio. Stock analysis is either fundamental or technical.

How Stock Trading Works with Brokers

Investors need a broker to buy or sell stocks, either an actual person or an online stock broker. When an investor wants to buy a stock, they tell their broker what stock and how many shares they want to buy. The broker then relays the order to the exchange, and a market maker sells the shares to the investor at the current market price. The shares are then delivered to the investor’s account.


What is Stock Market?

The stock market is a marketplace where publicly listed companies trade shares. Companies can raise capital by offering shares to the general public through an initial public offering (IPO) in the primary market.

What is the primary market?

The primary market is where companies issue new shares to the public in an initial public offering (IPO) to raise capital.

What is the secondary market?

The secondary market is where shares that have already been issued and sold in the primary market are traded among investors.

Who can buy and sell shares in the share market?

Anyone can buy and sell shares in the share market, including individuals, institutional investors, and companies.

How are share prices determined?

Share prices are determined by supply and demand. The higher the demand for a share, the higher the price will be, and vice versa.

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