STOCK EXCHANGE AND IT'S TYPES
What is a Stock?
In simple terms, a stock is a part ownership in a company.
It provides a share of the company’s in return for the capital invested.
For example, if a company has a total of 1,00,000 shares and you buy 1 share of the company, you have 1/1,00,000th ownership of the company.
What is a Stock Exchange?
A stock exchange is a market where the exchange of stocks and other financial instruments are facilitated.
The exchange provides services to stock brokers and traders to buy or sell stocks.
Companies who are interested to generate capital from the public get listed on the stock exchange.
The companies have to fulfill the documentation and fee requirements to get listed in the exchange so that their shares are available to the general public to buy and sell.
Most of the trading in the Stock Markets of India takes place through its two main stock exchanges:
The National Stock Exchange (NSE) and
Types of Stock Market
In the Stock market jargon, the term “market” can have many different meanings, but it is often used a common term to denote both
The Primary market and
The Secondary market.
Primary market
This is where companies issue their securities for the first time.
It is the place where the securities are created and the Initial Public Offering (IPO) of the company is made available to the people for the first time.
The company has to adhere to the guidelines and procedures laid by the exchange and the Regulatory body, i.e. the Securities Exchange Board of India (SEBI).
The commonly followed procedures are when
- An Underwriting firm is contacted by the company to determine the legal and financial soundness of the public offering.
- The company’s interests and prospects are filed with the proper authorities and a preliminary prospectus also known as the Red Herring is prepared which describes the company’s intent and business ambitions.
- A final prospectus is prepared and issued by the company which is availed to the prospective investors and details the issue’s price, restrictions, and benefits. This is legally binding for the company.
Secondary market
The is what people usually refer to when they talk about the markets or “Stock Markets”.
It is the electronic platform where the buying and selling of shares and other financial instruments takes place.
An important feature of the secondary market is that here the investors trade amongst themselves.
This means that if you are buying 1000 shares of ITC, some other investor is selling 1000 shares of ITC.
The company whose stock is being traded is in no way involved in the transaction.
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