How the Stock Market Works???

How the Stock Market Works:-

In the previous part, you were introduced to the basics of various market participants and other Stock Markets. Let's try to add these narratives together and understand how the stock market works. In the platform, trading of financial instruments such as stock exchanges and stocks and derivatives is traded. Market participants have to register with the stock exchange and SEBI to trade. This includes companies issuing shares, brokers operating trades, as well as traders and investors. All this is regulated by the Securities and Exchange Board of India (SEBI), which makes rules of conduct.
Here are new stock market rules that SEBI has introduced and what they mean for you. For the first time, a company is listed in the primary market through an Initial Public Offer (IPO). In its proposal document, this company lists the shares being issued, and similar details. During the listing, the stocks issued in the primary market are allocated to those investors who have bid for it.
Once listed, the shares issued can be traded by the investors in the secondary market. This is where most of the trading occurs. In this market, buyers and vendors gather to make profits to make profits or deduct losses.
Stock Brokers and Brokerage Firms are registered institutions with the Stock Exchange. They act as an intermediary between you, an investor and stock exchange.
Your broker sends your purchase order to the exchange, who searches for a sell order for the same stock. Once a seller and a buyer are fixed, a price is finalized, on which the exchange informs your broker that your order has been confirmed.

How is your order process:-

However, there are tens of thousands of more investors. It is impossible for everyone to mobilize and manage their business in one place. This is where stockbrokers and brokerage firms play the role. If you order to buy a particular stock at the said price, then it is processed through your broker in the exchange. The process behind the scenes involves many parties. In addition, the Exchange also confirms the details of buyers and sellers so that the parties are not defaulting. After this, the actual transfer of ownership of shares is facilitated. This process is called settlement. First, it took weeks for settling trades.
Now, it has been brought for T + 2 days. For example, if you have done business today, you will deposit your shares in your Demat Account after tomorrow (i.e., two working days).

The Exchange ensures that the business should be honored during the settlement. Whether the seller has stock to sell or not, the buyer will receive his share. If no settlement is done, the purity of the stock market is lost, because it means that trades cannot be retained. And when trade is organized, prices change. This is because prices of shares - like any other item - are dependent on the perceived value. This is reflected in the increase or decrease in stock demand. As demand for stock increases, orders for purchases are high. This increases the price of the stock. So when you see the price of a stock, even if it is modest, it means that someone or many have bought the order for the stock. Higher than the volume of the trade, the price of the stock is high.
You must have heard about the market volatility. Here are 4 reasons which have created current instability in India.

How to invest in a stock:-

Now that you understand how the stock market works, you might be wondering how to invest in the market.
1. First, understand your investment requirements and limitations. Your needs should be kept in mind along with the present as well as the future. The same applies to your borders. For example, you just got a job and Rs. 20,000 per month Your limit may be that you have at least Rs. 10,000 for installment payments for your car, and another Rs. 5,000 for your monthly expenditure
It only costs Rs. 5,000 for investment purposes. Now, if you are a risk investor, then you may prefer to invest a large part of this amount in lower risk options such as bonds and fixed deposits. This means you have only one small portion of the stock to invest in the stock market - Rs. 1,000. Also, keep your tax liabilities in mind. Remember, capital gains earn the profit on short-term buying and selling of tax-paying stocks. This does not apply when you sell your shares after one year.
Therefore, make sure not to force your cash to sell your stocks unnecessarily in the short run. Better to take a well-thought-out decision than attracting unnecessary costs in the future. It is better that you can plan your finances. Here are the benefits of financial planning.


2. Once you understand your investment profile, analyze the stock market and decide your investment strategy. Find out which stocks correspond to your profile. If we continue the above examples, with a budget of Rs 1,000, you can either buy a large-cap stock or several small-cap stocks. If you need an additional source of income, then select the option for high-dividend stocks. If not, then select the development stock, which is most likely to be appreciated in the future. Deciding on the stocks that you collect is part of your investment strategy. The step-by-step guide to creating your personal financial plan

3. Wait for the right time. Have you ever seen a victim of a cheetah or a tiger, they lie down for some time waiting for their prey and then they bounce. In the same way, time is highly important in the stock market. It is not enough just to get the stock right. Your profits will be maximized only when you shop at the lowest level. If you are selling your shares then the same applies. Need time for this. Do not be impulsive. You may want to do some analysis while waiting. Here's your guide to analyzing the stock market.

4. Operate your business either online or over the phone through your broker. Ensure that your broker verifies the business and all the details are correct. Confirm the business to avoid errors.

5. Regularly monitor your portfolio. The stock market is dynamic. Companies can find profitable in a moment, and due to some unforeseen factors, the next is not profitable. Ensure that you have regularly read about the companies that you have invested. In case of some unfortunate situation, this will help you reduce your losses before it's too late. However, this does not mean that you are afraid of falling stock every time. The price of a stock will fall in some time as some investors in the market will have a lower investment horizon than you. Therefore, he will sell his stock and in that short time, whatever is possible, sell it in the pocket. Gratitude is a key quality in the market. The basics are that it has to stop its investment against market volatility. Here you can read 5 ways to hedge yourself against Small Cap Crash.