In India, around 3% of the population actively engages with the Indian stock market. Why is this number not higher? While many people have certain negative preconceived notions about trading, the main reason for this lack of engagement is that the average Indian citizen does not know what the Indian Stock Market actually is.
History of the Indian Stock Market
Let us take a quick look at the history of the Indian Stock Market. First, the Bombay Stock Exchange (BSE) was established in the year 1875. Then came the National Stock Exchange (NSE), in 1992.
Around 7,000 companies are listed with the BSE and NSE. Including these two, a total of seven stock exchanges function simultaneously. It is through the combined work of these stock exchanges that the stock market is able to maintain its constant efficiency and manageable price range of the trades and investments.
Important Components of the Indian Stock Market
There are certain important components which have been created to better facilitate the smooth flow of the stock market.
A demat (short for dematerialised) account, is necessary for trading. All of the shares, mutual funds, bonds, etc., are credited and debited through this account. A demat account can be opened by anyone through various online platforms like Zerodha, Upstox, and Delta Exchange. Certain banks also allow their customers to open a demat account.
The clearing house exists to finalise transactions in the stock market. They act as an intermediary between the buyer and seller after the trade has been conducted. It ensures that both parties fulfil their obligations, thus reducing the overall risk.
The Sensex and Nifty, belonging to the BSE and NSE, respectively, are the benchmark indices of the Indian Stock Market. The Sensex lists 30 of the largest stocks listed on the BSE, and Nifty lists 50 of the largest stocks listed on the NSE. The main difference between the two is that Nifty is updated on a daily basis, while the Sensex is updated semi-annually.
How Does the Indian Stock Market Function?
The Indian Stock Market is an order-driven market. All trade takes place between 9:15 AM and 3:30 PM, Monday to Friday, and is done through the aid of an open electric limit order book. This keeps the process anonymous for both the buyer and the seller, as the entirety of the trade is done by the trading computer.
Services Offered by the Indian Stock Market
Though the services offered by the Indian Stock Market are many, such as Mutual Funds, Future & Options, Wholesale Debt Market, etc., traders normally focus on three categories, namely, Intraday Trading, Swing Trading, and Equity Trading.
Intraday Trading refers to the trades which take place during a single day. Traders take advantage of the price fluctuations in the market during a single trading day, and earn a profit through various strategies by continuously buying and selling shares.
Swing Trading is the term used for trades which take place over the course of several days, weeks or months, in which traders attempt to profit from an anticipated price increase of the shares. Traders use Technical and Fundamental Analysis to gauge the price trends and patterns of the firms listed on the Indian Stock Market.
The buying and selling of shares listed on the stock Market is known as Equity Trading. Equity Trading differs from Intraday and Swing Trading because the stocks bought are usually kept for a long period of time, sometimes more than a few years. Equity Trading helps the companies generate the necessary funds to operate effectively. This way, the companies are able to list even more stocks, thus keeping the stock market functioning smoothly.
Who Regulates the Indian Stock Market?
The Indian Stock Market is regulated by the Securities and Exchange Board of India, or SEBI. Founded in 1992, SEBI is an independent authority which consistently tries to maintain a balance in the stock market and ensures that honesty is maintained in all transactions by everyone.
These were the basics of the Indian Stock Market. If you wish to learn about the functions and powers of the institutions mentioned, and the various terms used in this article in greater detail, you will find the related articles on the Booming Bulls Academy blog.
If you want to know about Risk Management you can refer to our previous blog on Importance Of Risk Management In Trading.