Stock market basics
you must be wondering about what the heck is stock market and how are we suppose to invest in the stocks of various companies?
So don’t worry I’ll explain these concepts in detail.to simplify the understanding of this concepts let’s take an example how normal transaction takes place in the traditional market.
Let’s say there is an poultry farm owner MR. Shyam who wants to sell their produce like eggs,meat chickens but the problem is that his potential customers doesn’t no from where to purchase these products for example his MR. Raju wants to buy some eggs. But he don’t know about MR.Shyam so how both of them will transact with each others?
Here market plays significant roll in connecting buyers who is MR.Raju in our example and sellers who is MR. Shyam , so there is a physical place called marketplace . Lets’s say Baburao Ganapatrao Apte market. F or the sake convenience let’s say marketplace is electronic platform So this market will facilitate the transaction and provide a place where buyers and sellers will carry a transaction.
So MR.Shyam will go to list it’s products on Baburao Ganpatrao Apte website and MR.Raju a buyer will open the website and after visiting various sellers which are listed on the website. He decides to buy eggs from MR.Shyam. The transaction gets completed with the help of Babburao Ganpatrao Apte market which otherwise would have been impossible without market in place.
HOW BUYING SELLING TAKES PLACE ON THE STOCK EXCHANGES ?
If Shyam LTDs securities are already listed on stock market. Then the buying and selling of securities will take place between two investors MR.Raju will place the order on stock exchange through its stock broker. Another investor on the other hand will place sell order and their orders will be settled through automatic matching system. shares will be credited buyers demat account in Transaction day +2 days. The company will not be involved directly in the transaction. Only the names in the register of members will undergo a change.
INITIAL PUBLIC OFFER AND FOLLOW ON PUBLIC OFFER.
So now let’s understand how transaction will take place in market its just like how the buying and selling takes place in the electronic marketplace. Let’s understand this with the help of above example here in this example MR. Shyam is is a company shyam LTD. Who wants to raise money by issuing securities to public (poultry produce) and MR. Raju is an investor who wants to invest money and subscribe for securities. But company has to get it’s securities listed on one or more stock exchanges. If company is issuing it’s securities to more than 200 persons. subject regulations and guidelines issued by SEBI.
MR.Raju will apply for securities of Shyam LTD and has to deposite application money along with application form. Through either banks or stock brokers (now it is compulsary to have a bank account, trading account and demat account to apply for securities ) after receiving application form form investor. Securities are allotted on some basis whether lottery, proportionate issue basis and many more. In this case money flows directly into the company and securities are issued in respect.
When company raises money and gets it’s securities listed in the market for the first time. Then it will be called as initial public offer and from next time onwards when company whenever raises money from public it will be called s follow on public offer.
In this article we discussed about basics of stock market and how company raises funds from market and investors can transact with each others on the stock exchange. In this next article we will discuss about various market participants.
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