4.1 What Is A Stock Market?

Hanumant Dhokle


Before discussing about stock markets, let us understand the concept of a market. We know what a market is. There are vegetable markets, fish markets, real estate markets, and so on. A market is a common place where buying and selling of goods and services take place between a buyer and seller directly or indirectly through intermediaries and facilitators.

With the advent of new internet technology, buyers and sellers need not even be physically present. The market can still exist. Stock market, share market and securities market are interchangeable terms used in the investment world. Stock market or the share market refers to the market for equity shares, while securities market encompasses the market for equity shares, bonds, debentures, gilts and other securities.

Consider an example. Mahesh applied for the IPO of a company called XYZ and received allotment of 100 shares. Now he is wondering whether to sell, hold or buy more shares of the same company. In order to take an appropriate decision he must have some price information about XYZ’s shares. At this juncture he is curious to know the current price of the shares of XYZ. Satisfied with the price, he needs to find a buyer. He also needs to ensure that the transactions are transparent. Stock markets therefore address issues such as:

  1. They provide price information for trading decisions.
  2. They act as a bridge between buyers and sellers.
  3. They ensure marketability and liquidity for the shares.
  4. In the absence of stock markets, it will be difficult to find investors willing to invest or participate in equity shares.
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