Indian Stock Market – Basic

I’m glad that you are reading my first post.

Stock market is a familiar name to me. I’ve heard its various success and failure stories. As per my understanding of the stock market, it is a field where one takes decision-based on numbers, charts and graphs. Being a mathematics graduate, I used to fascinate to know more about this market. Those who know about this market and who are regarded as experts say the investment in the stock market is based on science rather than gambling. I always fascinated to understand this science. Recently, I came across several articles, which let me think seriously to know more about the stock market and do some trading in the market.

I started reading about the stock market in India and how I can start trading. I discussed this with my brother and colleagues. Further, I tried to read about these through various sites. Whatever small doubts were coming in my mind, I searched on Google.

I’m sharing the things I learned about basics of the stock market in India. It may not be perfect as I am just a learner and my understanding might be a misinterpret. But, I’m sure it would improve with time.

In India, Stock market is regulated by SEBI – Securities and Exchange Board of India. There are various Stock exchanges in India. Primarily, stocks are traded in the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). BSE is an old exchange founded in 1875, whereas NSE is a bit younger in comparison to BSE. NSE started trading in 1994. The market capitalisation of BSE is 11th and NSE 12th in the world. However, there is just a marginal difference between both. BSE has around 5800 listings of companies compared to 1700 in NSE.

A stock exchange is a marketplace where securities are bought and sold. Their primary job is to raise capital for a firm. The secondary job of an exchange is to facilitate the trade of share. A firm raises capital, then the investor may liquidate their investment by selling the share to another investor. Based on numerous factors, particularly demand and supply, the value of the stock goes up or down. Stock traders try to predict this movement of stock price. Based on their prediction, they try to make money by purchasing the share at a lower price and selling it at a higher price.

In India, stock ownership certificate are held electronically. There is two depository in India which keeps share as dematerialized form, CDSL and NSDL. However, investors use the services of these depositories via their agents called as Depository participant. There are almost 850 DPs in India. An investor has to open a depository account with the DPs, which is commonly known as Demat Account.

The trading by an investor in a stock exchange is facilitated by stockbrokers. A stockbroker in India are institutions registered with SEBI for particular stock exchanges. They provide support in the form of consultancy and infrastructure for performing stock trading.

Other than stocks, an investor can trade in bonds, mutual funds, options, futures, derivatives, commodities, currencies etc through a stock exchange. However currently, I’ll be focusing only on stock trading.

A person, willing to invest in stock market, needs to get registered with a stockbroker, open a Demat account and register with a stock exchange. There are several banks which provide the three services required to carry out stock trading. Like ICICI, HDFC bank, SBI, Axis Bank, Standard Chartered, IDBI Bank, etc. They provide the 3-in-1 account. Bank account + trading account + Demat account. The brokerages charged by them are generally on a higher side.

One can also keep these accounts with the separate organisation. However, one trading account would be linked with only one Demat account. Small investors normally stick with the same stockbroker. Hence, it is very important to choose the stockbroker wisely. I’ve already chosen the stockbroker along with DP for my trading. I’ll discuss the process, factors, reasons and other details in my next article.

I would appreciate if I get some suggestions.

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