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 derivative contracts too are traded in the stock market.
There are two kinds of share markets:
Primary share market
A company enters the primary market to raise funds. It is in the primary market that a company gets registered to issue shares to the public and raise money. Companies generally get listed on the stock exchange 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, it promoters, its businesses, stocks being issued, price band and so on.
Secondary share market
In the secondary market, investors 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. Secondary market offers investors a chance to sell all its shares and exit the financial market.
For example: Shares of Tata Steel are trading in the market at Rs 230 a share. An investor can buy these shares at current market price and will 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.