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Chapter 6.1

Stock Markets Basics


Securities market is a financial market where securities (financial instruments) can be bought and sold between buyers & sellers on the basis of demand and supply.


When a company is in need of money it raises funds from banks through loans or through different financial institutions or through securities markets. Securities markets is a place where companies who are in need of the money can raise funds from the individuals who have money (i.e., investors) through intermediary instruments called securities.

There are two types of security markets - primary markets & secondary market

Primary market: This is the market where the company issues its stocks/shares for the first time to the public and raises money . When a company issues new stocks, these instruments are required to be listed on the stock exchanges.


Secondary markets: These are the markets where the securities are bought and sold after they are issued in the primary markets. The difference between a primary market and secondary market is that in the primary market the company sells the shares for the first time to the investors while all subsequent buying and selling of shares takes place in secondary markets..

Stock exchange is the platform through which buying and selling of shares takes place. Initially it used to be a physical market where buyers and sellers would shout the prices at which they want to buy or sell based on which trading used to take place. But with the advent of technology this whole process has gone online. Currently provides an electronic platform where the buyers and sellers can place orders to buy or sell shares and the underlying trading system does automatic order matching and facilitates transactions. Stock exchange can be regional or national level depending on the region of its operation. E.g. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are national stock exchanges while ASE (Ahmedabad Stock Exchange) is a regional exchange.

Stock exchange is the platform through which buying and selling of shares takes place. Initially it used to be a physical market where buyers and sellers would shout the prices at which they want to buy or sell based on which trading used to take place. But with the advent of technology this whole process has gone online

BSE Sensex is a 30 Stock index representing large, well- established and financially sound companies listed on BSE and covering key sectors ;NSE Nifty is a 50 stock index of companies listed on NSE and accounts for 23 sectors of the economy.

Share prices change due to demand and supply of that company’s share in the market. This means if more people want to buy (demand) the company’s shares than sell (supply) then the price will move up conversely if more people want to sell the stock than the people who want to buy it then the price will come down..

Key Takeaways:

  • Primary market is where new securities are created, e.g. IPO, and investors buy directly from companies.
  • While in Secondary market, existing securities are bought and sold and no new securities are created.
  • Companies can raise money by IPO and once listed they can be bought and sold on exchange like BSE and NSE
  • Indices like Nifty and Sensex are basket of stocks that help you track the market movements.

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