Understanding Stock Markets
Chapter 1 of 5
Why markets exist and who regulates them
7 min read
A stock market lets companies raise money from the public and lets investors buy and sell those ownership stakes later. Without it, a share in a business would be nearly impossible to sell at a fair price.
Primary and secondary markets
- Primary market: where a company issues new shares and receives the money, for example in an IPO.
- Secondary market: where investors trade existing shares with each other on an exchange. The company receives nothing from these trades.
Who does what
- SEBI: the regulator. It writes the rules, supervises market participants and protects investors.
- Stock exchanges (NSE and BSE): the platforms where buyers and sellers are matched.
- Clearing corporations: guarantee that trades are completed, even if one side defaults.
- Depositories (NSDL and CDSL): hold your shares in electronic form in a demat account.
- Brokers: let you place orders on the exchange and charge brokerage for it.
- Mutual funds and other institutions: large investors who trade on behalf of their unit-holders.
Keeping these roles separate is deliberate. The exchange that matches trades does not hold your shares, and the broker who takes your order does not hold your money or securities in its own name.
Key takeaways
- Primary market raises money; secondary market trades what already exists.
- SEBI regulates; exchanges match; depositories hold; brokers connect you.
- Your shares are held in your name at a depository, not by your broker.
This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.