Stock Market (Share Market): Complete Technical Guide – How It Works, Key Participants & Best Practices

1. Introduction to the Stock Market (Share Market)

The stock market, also known as the share market, is a regulated marketplace where shares (equity), bonds, derivatives, and other securities are issued, bought, and sold. It enables companies to raise capital and investors to participate in a company’s ownership and growth.

In India, stock market operations are governed by SEBI (Securities and Exchange Board of India) and executed through recognized stock exchanges such as NSE and BSE.

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2. What Is a Share / Stock?

A share (stock) represents:

• Ownership in a company

• Voting rights (in many cases)

• Right to dividends (if declared)

Types of Shares

• Equity Shares – Ownership + voting rights

• Preference Shares – Fixed dividend, limited voting

• Bonus Shares – Issued free to existing shareholders

• Rights Shares – Offered at discounted price to existing holders

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3. Structure of the Stock Market

3.1 Primary Market

Where new securities are issued for the first time.

Examples

• Initial Public Offering (IPO)

• Follow-on Public Offer (FPO)

• Rights Issue

3.2 Secondary Market

Where existing securities are traded among investors.

Examples

• Buying/selling shares on NSE/BSE

• Intraday trading

• Delivery-based investing

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4. Key Stock Market Participants (Who Is Who)

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4.1 Stock Exchanges

A stock exchange provides the electronic platform where orders are matched.

Major Indian Exchanges

• NSE – Largest by volume

• BSE – Oldest exchange in Asia

Core Functions

• Order matching (bid vs ask)

• Price discovery

• Market transparency

• Trade execution

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4.2 Market Regulator – SEBI

SEBI ensures:

• Investor protection

• Fair trading practices

• Regulation of brokers, registrars, exchanges

• Prevention of insider trading

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4.3 Depositories (Where Shares Are Stored)

Shares are held electronically in Demat accounts, maintained by depositories.

Indian Depositories

• NSDL

• CDSL

Responsibilities

• Secure electronic holding of securities

• Transfer of shares during trades

• Corporate action processing (bonus, split, dividend)

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4.4 Depository Participants (DP)

DPs act as intermediaries between investors and depositories.

Examples

• Banks

• Stock brokers

• Financial institutions

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4.5 Broking Firms (Stock Brokers)

A broker executes buy/sell orders on behalf of investors.

Types of Brokers

Type	Description
Full-Service Broker	Research, advisory, trading
Discount Broker	Low-cost execution-only
Bank-based Broker	Integrated with banking

Popular Indian Brokers

• Zerodha

• Upstox

• Angel One

• ICICI Direct

• HDFC Securities

Broker Responsibilities

• Order placement

• Trade confirmation

• Margin management

• Reporting & statements

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4.6 Registrars & Transfer Agents (RTA)

RTAs manage shareholder records on behalf of companies.

Major Registrars in India

• KFin Technologies

• CAMS

RTA Functions

• Maintain investor records

• Process IPO allotments

• Handle dividends, bonus, splits

• Manage share transfers & transmission

• Support investor grievances

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5. How the Stock Market Works (Step-by-Step Flow)

Step 1: Investor Opens Accounts

• Demat Account – holds shares

• Trading Account – places orders

• Bank Account – fund settlement

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Step 2: Order Placement

Investor places:

• Buy Order or Sell Order

• Order type: Market / Limit

• Quantity & price

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Step 3: Order Matching

• Exchange matches buyer & seller electronically

• Best price & time priority

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Step 4: Trade Execution

• Trade confirmation generated

• Contract note issued by broker

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Step 5: Clearing & Settlement (T+1 Cycle)

Day	Activity
T	Trade executed
T+1	Shares & funds settled

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6. Technical Explanation: Order Types

Market Order  → Executes at best available price
Limit Order   → Executes at specified price or better
Stop Loss    → Triggers order when price hits defined level

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7. Common Use Cases

• Long-term investing (wealth creation)

• Short-term trading

• Portfolio diversification

• Dividend income

• Hedging using derivatives

• Corporate fund raising

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8. Common Issues & Fixes

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9. Security Considerations

• Enable 2FA on broker accounts

• Never share OTP, PIN, API keys

• Verify broker is SEBI-registered

• Use official apps/websites only

• Regularly review contract notes

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10. Best Practices for Investors

• Start with delivery-based investing

• Understand company fundamentals

• Avoid tips & rumors

• Diversify across sectors

• Use stop-loss in trading

• Track corporate actions via RTA

• Maintain proper tax records

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11. Conclusion

The stock market is a well-regulated financial ecosystem involving exchanges, brokers, depositories, registrars, and regulators. Understanding how the system works end-to-end empowers investors to trade securely, efficiently, and responsibly. With correct knowledge, discipline, and risk management, the stock market can be a powerful tool for long-term wealth creation.

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