The share market is a marketplace where people buy and sell stocks of public companies listed on the stock exchange, much like the stock and equity markets. The share market provides a platform where investors can participate in the growth of companies by buying their shares. In this article, we will learn more about share markets and their types.
What is a Share Market?
Share Market is a platform that provides shares of public companies listed on the stock exchange that are traded (bought and sold) by investors and traders. People can trade different financial stuff, such as stocks, bonds, mutual funds, commodities, and more.
Investors invest in the share market for a longer investment horizon to earn higher returns over time. These equity shares can provide higher returns, with inflation in price lasting for a few minutes or the entire trading session.
In India, there are two major share market platforms, the NSE ( National Stock Exchange) and the BSE (Bombay Stock Exchange), where all the stock trading takes place. There are two major types of share markets, which we will discuss in this article.
Share Market: Key Takeaways
- The share market is also known as the Stock Market and Equity Markets.
- The share market provides a platform for investors and companies to have a smooth trading experience, ensuring transparency and trust.
- There are two major types of share markets, which are primary and secondary.
- In the primary Share Market, Shares are purchased through an IPO or Application Supported by a Blocked Amount (ASBA).
How Does a Share Market Work?
The share market provides a place where investors and companies go public and participate in various investment practices. Companies raise capital to fund their operations and for expansion. Investors and traders buy these shares to earn higher returns.
The stock price fluctuates based on changing market conditions, supply and demand. Based on the demand, if people buy company stock in large numbers, then their stock price goes up. If traders sell stocks more frequently, the price goes down.
- The company first shares its securities in the primary market. Investors who are interested can apply for the IPO and buy their shares. After the IPO, company shares are listed on the stock exchange.
- The shares are now available in the share market where investors can trade. Investors who purchased their shares in the primary market can also trade these shares in the secondary market.
- The brokerage firms help place the transactions of buy and sell orders received by the investors. They facilitate the buying and selling of shares in the market.
- The stock exchange authorizes and completes the transactions and the buyer receives the shares of stock.
The price variation of stocks depends upon market conditions, economic state, inflation, GDP, trends and other major factors. Investors use various approaches and diversify their investments across various assets to reduce the risk factor. Before starting, new traders or beginners can also use the stock market simulator to practice before starting with real-time investments.
Types of Share Market in 2024
There are two major types of share markets for investors in India. Let us have a look at each of them below.
1. Primary Share Market
The primary share market, also known as the new issue market, includes a market where shares are issued for the first time by companies planning to raise capital. The primary share market is crucial for companies looking to expand their operations, debt repayment, or research and development.
- The primary share market consists of newly issued securities such as stocks, bonds, or equities that are sold to investors for the first time.
- These shares are directly bought by the investors in an initial public offering (IPO).
- Investors can buy these shares at an offering price through the company.
2. Secondary Share Market
The secondary Share Market also known as the aftermarket, is where the existing shares of companies are bought and sold among traders and investors.
- Once a company’s share gets issued by the primary share market, it can be traded on secondary markets such as stock exchanges or over-the-counter (OTC) markets.
- Prices of companies in the secondary stock market fluctuate based on demand and supply dynamics.
- The secondary market provides liquidity to investors, allowing them to easily buy and sell their shares.
How to Start Investing in the Share Market?
Before starting with real investment and share market you must be familiar with stock market terminologies and workings. If you are a beginner, then follow the steps given below to start investing in the share market.
1. Build your Knowledge
Get familiar with the basics and fundamentals of the share market and related terminologies, such as working on the stock market, investment strategies, technical and market analysis, and more. There are plenty of materials and courses which can help you build your basics.
2. Set your Goals
Determine your investment objectives. Ask yourself why you want to start investing, whether it is for growing your wealth, retirement plans, buying a house, etc. Your goals will have a major influence on your investment strategies.
3. Open a Demat Account
Choose an online investment platform that opens an investment account. Consider factors such as platform fees, minimum balance, investment options, tools and customer service reviews of a firm before choosing it. Some major platforms which provide free demat accounts are Angel One, SBI, Kotak, Grow, Upstox, etc.
4. Practice and Learn
There are various stock simulators which provide a simulated share market environment where you can practice your investment strategies using dummy or virtual money. You will get to know your weak points and work on better strategies. Also, there are many online learning materials and courses available that can help you learn about the stock market.
5. Diversify your Portfolio
Spend your investments across various assets to reduce risk in your investment portfolio. It can also help mitigate the volatility of investments. You can choose from a variety of investment options, such as stocks, exchange-traded funds (ETFs), mutual funds, equities, commodities, bonds, etc.
Investing in the Primary Share Market
Investors can invest in the primary share market through an initial Public Offering (IPO). In the primary share market, newly issued securities are present. The company receives the investor’s applications and allots the shares based on availability and demand.
- You must have a Demat account to start investing in either the primary share market or the secondary share market.
- The trading account helps to buy and sell shares online.
- Investors can also apply directly from their bank account through net banking, known as Application Supported by Blocked Amount (ASBA).
- The amount of shares that you selected will be blocked and debited when the shares are allotted.
Investing in the Secondary Share Market
Make sure you mark the duration for which you remain invested and your financial goals. Check the steps given below to start investing in the secondary share market.
- Step 1: Open a demat account: First, traders need to have a demat account for trading in the secondary share market. Also, link these accounts with the bank account for seamless transactions.
- Step 2: Select Shares: Now, choose the share you want to buy after doing proper research on performance and market dynamics. Make sure you have sufficient funds in your account to place the order.
- Step 3: Select the price point: Decide the price at which you will buy or sell.
- Step 4: Complete the transaction: After completing the formalities, pay the transaction fee and complete the purchase. You will either receive the stock equivalent or money for the stocks.
Documents Required to Open a Demat or Trading Account
Investors or beginners must have the following documents before starting to invest in the share market.
- Adhar Card
- PAN Card
- Cancelled Cheque (with name, IFSC, Account Number, Account holder Name, Signature clearly visible)
- Address proof
- Passport-size photograph of the applicant
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Share Market FAQs
Q1. What is the Share Market?
Ans: Share Market is a platform that provides shares of public companies listed on the stock exchange that are traded (bought and sold) by investors and traders.
Q2. What are different types of Share Market?
Ans: There are two major types of share market Primary Share Market and Secondary Share Market.
Q3. What is the Primary Share Market?
Ans: The primary share market consists of newly issued securities such as stocks, bonds, or equities that are sold to investors for the first time.
Q4. What is the Secondary Share Market?
Ans: The secondary Share Market also known as the aftermarket, is where the existing shares of companies are bought and sold among traders and investors.
