What is stock market?

Many companies allow the public to buy part of its company. How do they do this? It does this through selling shares. A share is simply a piece of paper that says you own part of a company. A company is basically formed by a group of people who have a plan in mind, with which they hope to make money in future, and for which they require capital, as in initial investment, with which they can put forward their plans. So they approach the general public with the proposal put for-ward in print, which is popularly known as the prospectus. The public goes through the prospectus, and if they find the proposal viable, they fill in the application forms in order to subscribe to the company along with the required amount of money. The company then decides to allot shares to the persons applying, which means, the shares, in proportion to the amount sent in by the applicant is sent to the sub-scriber, who then becomes a shareholder in the company. This initial issue of shares to the public by the company is called the Primary Issue of the company.

The shares of the company then get listed in The Stock Ex-change. A stock exchange is an organized market for the pur-chase and sale of listed securities. It is the place where one who wants to buy a particular share may find a seller and one who wants to sell a share may find a buyer. The com-panies that are listed are included in the official trade list of the stock exchange. Listing of securities means the inclusion of securities in the official trade list. Listing is possible only when the necessary details about the or-ganization and working of the company is provided to the stock exchange.

Supposing, you missed the initial public offering by the company. Itâ€™s not the end of the world. You can still go ahead and buy the shares. How do we do that? Well, this is what the stock exchange is there for. Letâ€™s see, you have around two thousand rupees, definitely not enough to buy out the entire company. But, a part of it, yes. Now that you know what to buy and how much money you have, its just a matter of organizing the purchase. How do you purchase the share? Remember, you cannot directly go to the stock ex-change and buy them. For this purpose, you seek the aid of those who are called brokers. Brokers are commission agents, who transact business in securities on behalf of non-members. He is the link between the general public and the company. You have to request your broker to buy a par-ticular share. If the broker is happy with your financial standing, he strikes a deal with you. So now you have to place an order with the broker, as to say â€œ buy 100 shares of X Ltd at Rs.19â€. The broker then takes down the order in the â€œorder bookâ€ and then transacts the business either through an authorized clerk or personally. He goes to the stock exchange and starts making the quotation. The person who wants to sell the share, i.e. the dealer has to make his own quotation. Once both of them reach a compromise, both of them make a brief note of the particulars of the transaction in a small notebook. The broker keeps a record that you own that stock, rather than sending you the actual paper stock certificates. If you ever want to sell them, your broker will sell them, deduct his commission, and then give you the money. This process of selling and buying of already listed second hand shares is called â€œSecondary Market Operationsâ€.

So now you own a part of the stock of the company. A stock is a certificate that shows that you own a small fraction of a corporation. When you buy a stock, you are paying for a small percentage of everything that company owns. In es-sence, a stock is a representation of the amount of a com-pany that you own. You are now a shareholder of the company. You have the right to attend meetings held by the company annually and also vote in any decisions being taken by the company.

This is a very simplified explanation of the many compli-cated operations, which are taking place in the stock mar-ket. This article is the first of the many articles which are going to follow in the coming weeks as to how exactly the stock exchange functions and the various terminology which goes along with it.