What is share market ?

In a share market, shares are bought and sold. The stock market is a share market, however, besides shares of companies, other instruments like bonds, mutual funds and derivatives contracts too are traded in the stock market. These are two kinds of share markets.

• Primary share market : The primary market is the part of the capital market that deals with issuing of new securities. Primary markets create long-term instruments through which corporate entities raise funds from the capital market. It is in the primary market that a company registered to issue shares to the public and raise money. Companies, governments or public sector institutions generally get listed on the stock exchange and raise capital through the sale of new stock through Bond Issues through the primary market route. In case a company is selling shares for the first time, it is called an Initial Public Offering or IPO, after which the company becomes public. While going for an IPO, the company has to provide details about itself, its financials, its promoters, its businesses, stocks being issued, price band and so on. This is often done through an investment bank or finance bank or finance syndicate of securities dealers. The process of selling new shares to investors is called underwriting. Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.

Instead of going through underwriters, corporations can make a primary issue of its debt or stock, which involves the issue by a corporation of its own debt or new stock directly to institutional investors or the public or it can seek additional capital from existing shareholders.

Once issued the securities typically trade on a secondary market such as a stock exchange, bond market or derivatives exchange.

• Secondary share market: In the secondary market, investor's trade already listed securities by buying and selling them. Secondary market transactions are transactions where one investor buys shares from another at the prevailing price. Normally, these transactions are conducted through a broker. The secondary market offers investors a chance to sell its shares and exit the financial market. For example, Shares of Tata Steel is trading in the market at Rs. 230 a share. An investor can buy these shares at the market price and well get part-ownership of the company and become a shareholder.

The share market is a source for companies to raise funds and for investors to buy part-ownership in growing businesses and grow their wealth. On becoming a shareholder, an investor earns a part of the profits earned by the company by way of dividend. At the same time, the investor also undertakes the risk to bear loses, should the business fail to perform well. Market participants need to get registered with the stock exchange and market regulator Sebi to be able to trade in the stock market.