4. That supply and demand help determine the price for each stock or the levels at
which stock market participants — investors and traders — are willing to buy or sell.
5. Buyers offer a “bid,” or the highest amount they’re willing to pay, which is usually
lower than the amount sellers “ask” for in exchange. This difference is called the bid-
ask spread.
6. For a trade to occur, a buyer needs to increase his price, or a seller needs to
decrease hers.
How does the stock market work? - Oliver Elfenbaum
What can you invest in the Stock Market on?
The key financial instruments offered by the stock market are:
1. Equity shares: Issued by companies, equity shares entitle you to receive a claim to
any profits paid by the company in the form of dividends.
2. Bonds: Issued by companies and governments, bonds represent loans made by the
investor to the issuer. These are issued at a fixed interest rate for a fixed tenure.
Hence, they are also known as debt instruments or fixed income instruments.
3. Mutual Funds (MFs): Issued and operated by financial institutions, MFs are vehicles
to pool money which is then invested in different financial instruments. Profit from the
investments is distributed between the investors in proportion to the number of units
or investments they hold. These are called “actively” managed products where a fund
manager takes calls on what to buy and sell on your behalf to generate better returns
than the benchmark (like the NIFTY).
4. Exchange-Traded Funds (ETFs): Increasingly gaining popularity, ETFs essentially
track an index like the NIFTY or the SENSEX. Once you buy a unit of the ETF, you
hold a part of the 50 stocks in the NIFTY in the same weightage that the NIFTY holds
them. These are called “passive” products, which are typically much lower in cost
than MFs and give you the same risk or return profile as the index.
5. Derivatives: A derivative derives its value from the performance of an underlying
asset or asset class. These derivatives can be commodities, currencies, stocks,
bonds, market indices and interest rates.
What does it cost to invest in the Share Market?
There are a few types of charges that you will usually pay:
1. Transaction costs: All brokers are paid a brokerage, which is a fee they take to
facilitate a trade for you. They also collect taxes and dues paid to the government on
each transaction, such as the Securities Transaction Tax (STT), SEBI charges,
Goods and Services Tax (GST), among others.
2. Demat charges: Demat accounts are operated by central securities depositories
such as NSDL or CDSL, under the government’s jurisdiction to safeguard your