What Is the Stock Market and How Does It Work?

A share market is a centralised marketplace where listed company shares are bought and sold. It helps businesses raise funds and gives investors a way to own part of a company, making it vital for economic growth and wealth creation. As of March 31 2025, the National Stock Exchange (NSE) recorded about 2,720 companies with a combined market capitalisation of ₹410.87 lakh crore. In this article, let's discuss share market basics, how it works, and more. 

What is a Stock?

A stock represents a share of ownership in a company. When an investor buys a stock, they become a shareholder. Stocks give investors the right to benefit from the company’s growth through price appreciation and dividends. The stocks are traded on the stock exchange. 

What is a Share Market?

The share market, also referred to as the stock or equity market, is a marketplace where shares of companies are purchased and sold. When you buy a share, you obtain a small stake in that particular company. In India, these shares are traded through the stock exchanges like the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The share prices fluctuate based on demand and supply, company performance, and overall market conditions. 

Types of Share Market

The stock market explained simply is a place where buyers and sellers trade shares of companies based on their value. The following are the types of share markets in India. 

Primary Market 

• The primary market refers to a market where new securities are listed for the very first time.  

• In the primary market, a company issues new shares to the public to raise its capital.  

• The primary market is also referred to as the "new issue market". 

Secondary Market 

• Once the shares are listed on the primary market, they are exchanged in the secondary market. 

• These shares are traded on popular stock exchanges like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE) in India. 

How Does a Share Market Work?

The following is a guide on how the share market works. 

• The share market helps companies raise their capital by selling their shares in the primary market via an initial public offering (IPO).  

• Investors then buy and sell shares in the secondary market on popular exchanges like the NSE or BSE. 

• The share prices fluctuate based on their supply, demand, company performance, and market sentiment. 

• The execution process of buying and selling orders for investors is done by the brokers who act as intermediaries, executing buy and sell orders for investors. 

• To ensure transparency and equality, the Securities Exchange Board of India (SEBI) oversees the market operations. 

Important Terms to Know About the Stock Market

The following are some important terms to know about the share market. 

1. Stock (Share): A unit of ownership in a company that gives investors a claim on its profits and assets. 
   
   
2. Dividend: A portion of company profits distributed to shareholders, usually in cash or additional shares. 
   
   
3. Initial Public Offering (IPO): The process through which a company offers its shares to the public for the first time. 
   
   
4. Market Capitalisation: The total value of a company’s outstanding shares, calculated as the share price multiplied by the total number of shares. 
   
   
5. Bull Market: A phase where stock prices rise consistently, reflecting investor confidence and economic growth. 
   
   
6. Bear Market: A period of falling stock prices, often linked to pessimism and weaker economic conditions. 
   
   
7. Portfolio: It is a collection of investments (stocks, bonds, mutual funds, etc.) held by an individual or institution. 
   
   
8. Volatility: The degree of variation in stock prices over time, reflecting the level of risk and uncertainty. 
   
   
9. Liquidity: How easily an asset, like a stock, can be bought or sold in the market without affecting its price. 

How to Invest in the Share Market

Here’s a straightforward guide to get started with investing in the share market. 

Step 1: Select a Stockbroker 

Select a reliable stockbroker offering an online trading platform to execute your trades. 

Step 2: Open Investment Accounts 

Before investing in the share market, it is important to have the Demat and trading accounts. You need to upload documents like the PAN card, address proof, bank proof, income proof (to trade derivatives), and a passport-size photo. 

Step 3: Research Stocks 

Before investing in any stock, it is important to do your research on the performance of the company, market trends, and the stock fundamentals.  

Step 5: Place Orders  

By using your trading account, buy or sell shares based on your research and investment goals. 

Step 6: Monitor Your Investments 

Keep track of how your portfolio is performing and then adjust your strategy accordingly. 

Conclusion

Investors must understand the share market before investing. It comprises the primary market, where shares are issued for the first time, and the secondary market, where existing shares are traded. Stock exchanges, brokers, and investment accounts are essential components that together facilitate investment activities under SEBI’s regulation. Knowing these basics helps investors begin their journey with clarity and make appropriate decisions while making their initial investments.