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SHARETIPSINFO >> Articles Directory >>Indian stock market types – primary market and secondary market

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Primarily there are two types of stock markets – the primary market and the secondary market. This is true for the Indian stock markets as well. Basically the primary market is the place where the shares are issued for the first time. So when a company is getting listed for the first time at the stock exchange and issuing shares – this process is undertaken at the primary market. That means the process of the Initial Public Offering or IPO and the debentures are controlled at the primary stock market. On the other hand the secondary market is the stock market where existing stocks are brought and sold by the retail investors through the brokers. It is the secondary market that controls the price of the stocks. Generally when we speak about investing or trading at the stock market we mean trading at the secondary stock market. It is the secondary market where we can invest and trade in the stocks to get the profit from our stock market investment.

Now these are the broadest classification of the stock markets that is true for any country as well as India. But the Indian stock markets can be divided into further categories depending on various aspects like the mode of operation and the diversification in services. First of the two largest stock exchanges in India can be divided on the basis of operation. While the Bombay stock exchange or BSE is a conventional stock exchange with a trading floor and operating through mostly offline trades, the National Stock Exchange or NSE is a completely online stock exchange and the first of its kind in the country. The trading is carried out at the National Stock Exchange through the electronic limit order book or the LOB. With the immense popularity of the process and online trading facility other exchanges started to take up the online route including the BSE where you can trade online as well. But the BSE is still having the offline trading facility that is carried out at the trading floor of the exchange at its Dalal Street facility.

Apart from these classifications there are also different types of stock market in India and the classification is made on the type of instrument that is being traded at the market. Both the Bombay Stock Exchange and the National Stock Exchange have these types of stock markets.

Equity market or the cash segment – The first type of market is the equity market or the cash segment where stocks are traded. In this type of trading the buyers of the stocks book a buying order with a bid price and the order is executed through the broker at a negotiated ask price offered by the sellers at the market. In most cases the deal is closed or the stocks are brought at the best available ask price. In this type of trading the buyer pays the entire amount of the value of the stocks that is determined by multiplying the number stocks with the current price of the stock. Once the buyer pays the entire amount along with the brokerage and taxes of the transaction the stocks are deposited to the DP account of the buyer.

Derivative Market – In the derivative market trading is done mainly through two instruments – the Future contract and the Option contract. In both these types of contracts the stocks are bought and sold in lot. The number of stocks for each lot depends on the valuation of the stock and the valuation of the lot is determined by the number of the stocks in a lot multiplied with the current market price of the stock. For trading in derivative market you have to buy either the future contract or the option contract. In a future contract you are bound to close the deal within a specific time and at a fixed arte. While in case of option contract you can also choose to ignore the contract.

 

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