Many of us wonder how the stock market works. So, here are the complete details about the Bombay Stock Exchange and National Stock Exchange.
In the Stock market, many companies are willingly accepting the public amount. In return, they give the shares of the company. So, the company is giving the part of the company in the form of shares.
Here the shares are the entity, where the shareholders will earn depending on the performance of the company. If the company grows, then there will be a demand for the company product. So, eventually demand the company and share price also increase.
Then the shareholders can sell the share at the present price and earn profit. For example, if the shareholder brought one share for RS 100, if the share price rose 400, then he can sell and earn a profit of 300.
This is a simple way to understand the share market. In this way, one can earn from the share market.
There might be different questions revolving around your mind like
- How are the company are listed in the Share Market?
- How share is purchased by the people?
Also Read : How the stock market works
IPO of the Company
IPO full form is Initial Public Offering. The company can become public by accepting the IPO.
Some companies are getting a lot of consumers to use their service or product. Then the company thinks of expanding the company to create more revenue and brand visibility to different states across the country.
But there will be not enough capital there in the company. Even there will no source like angel investors to fund huge money. During, this time company will go no to public.
At this stage, the company will accept IPO. Now onwards, the company will no more be private instead it will be public.
Then people can buy the share price with the specified price.
Here shares of the price are given according to the company financial records. This means shares value is not overvalued or undervalued.
Here, the question arises of how Stock Market works for the company and even how the company list on the stock exchange.
How Stock Market Works
Many of us had seen that the share price of the company are varying for each second. There will be fluctuations in the prices of the shares.
Here the share price of the company decreases or increases about the performance of the company. Now, the companies should be under stock exchange firm before going to the public.
In India, there are two Indian Stock Exchange firms. They are
- National Stock Exchange (NSE)
- Bombay Stock Exchange (BSE)
Bombay Stock Exchange: How stock market works
It is also known as BSE. It is one of the oldest and first Stock exchanges founded on July 9, 1875. Even it is known from another name Dalal street. BSE is located in Mumbai, Maharastra near Horniman circle.
Then, the Bombay Stock Exchange was the hub to buy/ sell the share between the traders and stockholders. Premachand Roychand is the first to found BSE in 1975.
Now, the Bombay stock exchange is the world’s 9th largest stock exchange valuing about 255 trillion.
If one has heard about the Bombay Stock Exchange. Then one would be familiar with the term SENSEX. Here, SENSEX full form is Stock Exchange Sensitive Index.
SENSEX is the index of BSE. Here this index implies whether the market is performing well or not.
As there are over 5500 companies in the BSE. So, it is hard to find the overall performance of the market. Even calculation of all 5500 companies’ shares and evaluating to find the value of the market is a tedious job.
So, to make the process easy there is SENSEX 30. Here in BSE, the top 30 companies with huge market capitalization are listed in the BSE.
Then, with the performance of these 30 companies, the overall market trend is taken into consideration. This is how the share market works.
NSE: How stock market works
NSE is another Indian stock Exchange, a National stock exchange located in Mumbai, Maharashtra.
National Stock exchange of the first dematerialized stock exchange in India. As NSE was started in 1992 to compete with the BSE. Additionally, to prevent the monopoly of the BSE.
In NSE, NIFTY is the index where it determines the trend in the market.
Here, NIFTY acts the same as SENSEX in the Bombay Stock Exchange. The only difference is there are top 50 companies under NIFTY to determine the trend in the market.
This is the way, how Stock market works. So, there BSE and NSE are the two Stock exchanges where the overall shares of all companies are trading all day.
Finally, people can buy the shares from the shareholders, stockbrokers. Even NIFTY and SENSEX plays a vital role in understanding the overall activity of the market.