The stock exchange is a regulating body that provides access to a large pool of buyers and sellers to trade financial instruments. The stock market facilitates trading during business days and working hours adhering to the guidelines by SEBI (Stock Exchange Board of India). However, only the listed companies are allowed to trade its equity shares in the stock exchange.
If the stocks of the companies are not listed on the stock exchange, they can be traded in the over-the-counter market. The unlisted stock market has no physical existence and the market functions among limited members. These equity shares are not highly esteemed in the stock exchange market.
How does the stock market function?
Stock market functions on a pretty simple concept. Buyers and sellers can negotiate the prices and make trades of the listed shares. A network of exchanges allows easy-going of the stock market.
After a company is set up, the buyers and investors can avail of their shares. With the process of IPO (Initial Public Offering), companies list their shares on the stock exchange.
The conduction of the pre-IPO process lets companies raise funds to meet their capital requirements and grow the business. When stakeholders buy and sell those stocks among their network of market makers and investors, the demand and supply of each listed stock are tracked.
The tracking of the shares helps in determining the price for each security at the level where investors and traders are willing to pay the price.
Buyers place the highest bid for particular shares which is certainly lower than the sellers’ requirements. And, this difference is called the bid-ask spread. To trade on a positive approach, the buyers and sellers have to mutually agree on an optimal price.
When observed as a manual performance, it seems to be a complicated process. But the computer algorithms do the price settings efficiently. The bid-ask spread isn’t of much concern in the case of beginner and long-term investors.
Stock market volatility
The price at which the prices of the stocks fluctuates over a period of time is referred to as stock market volatility. If the stock price encounters higher volatility, it signifies higher risk and alarms an investor to invest wisely.
Stock market trading does come with risks. If the investors apply the right strategies, they can be deprived of the risks and can save themselves from long-term losses. The listed equity shares are trading in different ways. One of them is day trading. Based on price swings, the investors have to buy and sell shares proactively which is an extreme risk.
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