GETTING STARTED IN STOCK MARKET

When you wanted to invest in stocks you also need to have a basic understanding of how the stock market works. Stock market consists of two different functions- the primary market and the secondary market.

The stock market provides a mechanism where people who want to own shares of stock can buy them from people who already own those shares. This mechanism not

only matches buyer and seller, but it also provides a way for the buyer and seller to agree mutually on the price. Note that when you buy shares in a publicly traded company such as Reliance, you are not buying the shares from the company itself. You are buying the shares from another investor who already owned the shares. This is what economists call a secondary market for shares. In the secondary market, investors buy and sell those shares to other investors depending on the current market conditions.

Nowadays trading is done electronically with a click of a mouse. If you wanted to buy a share you just have to approach a broker in which you have a demat account and let him know. That’s all. Within minutes the share will be in your hands (I mean in your account). When the deal is done a message is sent back to your broker and you have now become the owner of stock in a company. At a later date, you may decide to sell the stock (especially if the price per share has gone up). Then you will make a profit.

This is different from the primary market in which the company sold the shares directly to investors in the first place. The initial public offering (IPO) occurs when the company first sells shares to the public and arranges for the secondary trading of its shares. The primary market is the IPO and the secondary market is the trading done through brokers in the open market.