What is Equity Market

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Equity market enables businesses to raise funds from various investors. As a result, a corporation issues stocks that traders or investors buy with the hope of making money from the stock's future sales.

The equity market and stock market are sometimes used interchangeably since they both essentially perform the same function of enabling stock trading. However, in addition to exchanges, over-the-counter trading markets are included in equity markets.

Thus, equity markets act as a venue for both over-the-counter private stock trading and public stock listings on exchanges like the BSE, NSE, etc.

Based on how a stock we have invested in will perform in the future, we can earn gains. Equity markets may additionally be thought of as a central location where buyers and sellers of stocks come together to transact. 

Types of equity markets

Equity markets, which include structured trading and investing, can be divided into primary and secondary markets, which are two different types of platforms.

Primary Markets

Initial Public Offerings, or IPOs, are required for every business that intends to make its shares available for public trading. In this method, the company makes a portion of its entire equity available to the public in order to raise money at first. The offered equities are posted on the stock exchange for additional trading after the IPO is complete. The primary market is where a company's IPO is introduced in its entirety. To put it another way, this market is limited to IPO introduction & investment.

Secondary Markets

Further trading for the shares occurs in the secondary market after they are previously listed on one of the exchanges. The original investors here have the chance to withdraw their money by selling their stocks on this active equity market. These stocks may include shares in addition to other instruments such as corporate bonds, convertible bonds, and so forth.

A wide spectrum of traders now has the chance to make investments in such stocks, as well as individuals who were unable to buy securities in the primary market. Another frequent feature of the secondary equities market is that stockbrokers are typically used as intermediaries for trading.

 

How do companies get listed in the stock market?

By adhering to the Securities and Exchange Board of India's (SEBI) procedures, businesses in India can list their shares on stock markets. The general steps are as follows:

  • Eligibility requirements

The business must satisfy the SEBI's qualifying requirements, which include having an initial net worth, economic viability, and a history of abiding by rules and regulations.

  • Decide on Intermediaries

Intermediaries like share transfer agents, registrars, merchant bankers and underwriters must be chosen by the company.

  • The prospectus' creation

The business must create a prospectus that includes all necessary details about the organization, its management group, its finances and its goods & services.

  • Send the prospectus

The prospectus must be submitted by the corporation to SEBI for clearance.

  • Application in File

The company must submit an application to the stock markets (such as the Bombay Stock Exchange or the National Stock Exchange) where it wishes to be listed after SEBI approves the prospectus.

  • Book Creation

The corporation has the option to price its shares using the book building process.

  • Distribution of Shares

Investors who applied for the shares during the IPO are given the shares.

  • Trading and Listing

The shares of the business get listed on the stock exchange & can then be purchased and sold.

  • Monitoring Compliance

Following its listing, the firm must abide by a number of laws and guidelines, including those pertaining to disclosures, regular financial reporting, along with additional corporate governance standards.

It's vital to keep in mind that the procedure may differ based on the type of listing (such as an IPO or a follow-on public offering) & the norms and regulations of the Indian stock market.

Top stock exchanges in the Indian equity market

The National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE) are the two most important stock exchanges in the Indian equities market.

The NSE was founded in 1992, and Mumbai serves as its administrative center. According to trade volume and market value, it is India's largest stock exchange. It provides a completely computerized visual trading system, and the Nifty 50 serves as its benchmark index.

The BSE, on the contrary, was founded in 1875 and is one among the earliest stock exchanges in Asia. In accordance with the Securities Contracts (Regulation) Act of 1956, it was the first stock exchange in India to receive official recognition from the government. Its headquarters are likewise located in Mumbai. It provides open-outcry and electronic trading platforms, and the BSE Sensex serves as its benchmark index.

Both, the NSE & the BSE are largely regarded as major forces behind the expansion of the Indian equities market and play a significant role in it.

How to trade in the equity market

Trading in the equity market begins with the first step & that is to open a demat account. In order to execute a sale, trading typically involves the seller setting a price and the buyer committing to shell out that price in order to buy the security. In a broad sense, all traded shares and securities that are also referred to as stock fall within the definition of equity in the share market. Thus, while trading, equity & stock are used interchangeably.

Here are some general steps for trading in the Indian stock market are as follows:

  • Establish a Trading Account

You must open a trading account through a broker in order to begin trading on the Indian equity market. You can do this by going online or by physically visiting a broker's office.

  • Open a Demat Account

Additionally, you require to open a demat account in order to store the securities you purchase online. The legal requirement for trading on Indian stock markets is a Demat account.

  • Your Trading Account's Funds

When you have a trading account plus a demat account, you must transfer funds from your bank account to your trading account in order to finance it.

  • Make a purchase

You must place a bid through your broker in order to purchase or sell shares on the equities market. Orders can be placed over the phone, online, or via a mobile app.

  • Keep an eye on your investments

After placing an order, you can keep an eye on your investments using a mobile app or your trading account. You may keep tabs on the progress of the stocks you've purchased and keep an eye out for any developments or events that might have an impact on their value.

  • Sell Your Stock

You must use your broker to put in a sell order if you'd like to sell your shares. This can be done over the phone, online, or with a mobile app.

  • Settlement

Within a couple of days of the purchase or sale of shares, the deal is completed. The shares you have purchased will be sent to the Demat account you have set up by your broker, and any proceeds from the sale of shares will be deposited into your bank account.

Prior to making any investing decisions, it's crucial to conduct research and obtain guidance from a financial advisor because trading on the equity market can be risky.

FAQs on Equity Market in India

What is the true meaning of equity?

Capital invested by a company's owner is known as equity. It also comprises the company's earnings, which is kept for future growth and development. Equity, in terms of investors, refers to the worth of their ownership stake in the company.

What are the main types of equity?

The main kinds of equity include retained earnings, accumulated income or losses, treasury stocks, more paid-in capital, preferential stock and common stocks.

What does the equity market mean?

Shares of businesses are bought and sold on the equity market. It enables publicly traded businesses to raise money to support their expansion. For investors, it provides a platform for participation in ownership of a firm with the opportunity for capital gains according to performance.

What is an example of equity trading?

Simple stock transactions like buying and selling count as an e.g. of equity trading. Equity trading, for instance, is when you acquire a share of "Reliance Industry" and trade it within a day or a few weeks. Technical analysis is typically used by traders to pinpoint equities with promising trading prospects.

How do I start trading in equity?

It is advisable to begin with a solid knowledge of the stock market as well as basic and technical stock research because stock trading may prove risky. To start, you'll need to open a Demat & trading account and connect them to your bank account. Once these accounts are set up, you can start putting a certain amount down when bidding for stocks.

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