Every second the market is open, thousands of strangers are quietly agreeing on a price for companies they will never meet. Nobody writes the price of a share on a board. It is created live, by buyers and sellers, one trade at a time. Here is how that works, step by step.

How a share price is created

Every share has two prices at any moment:

  • Bid: the highest price a buyer is currently willing to pay.
  • Ask (or offer): the lowest price a seller is currently willing to accept.

Suppose a buyer bids ₹99 and a seller asks ₹101. No trade happens yet. If the buyer raises the bid to ₹101, or the seller lowers the ask to ₹99, the two orders match and a trade is done. The price of that last trade becomes the "current price" you see on your screen.

That is all a price really is: the most recent price at which a buyer and a seller agreed.

Why prices keep moving

If more people want to buy than sell, buyers have to offer higher prices and the share rises. If more want to sell than buy, sellers have to accept lower prices and the share falls. What changes demand and supply?

  • The company's results and future plans
  • Government policy, interest rates and the economy
  • News from the rest of the world
  • Plain emotion: fear and excitement spread quickly
The surprising part

When you buy a share on the exchange, the company usually does not receive your money; the investor who sold the share does. The company is paid only when it first issues shares, for example through an IPO. After that, the market is investors trading with each other.

Who is involved when you place an order?

  1. You place a buy order in your broker's app.
  2. Your broker sends it to the stock exchange (NSE or BSE).
  3. The exchange matches it with a seller's order, usually in a fraction of a second.
  4. The clearing system makes sure money and shares move correctly.
  5. The depository (NSDL or CDSL) credits the shares to your demat account.

Everything is watched by SEBI, the regulator that makes the rules and protects investors.

The two order types every beginner should know

  • Market order: "Buy now at whatever the best available price is." Quick, but the price can differ slightly from what you saw.
  • Limit order: "Buy only at this price or better." You control the price, but the order may not be filled if the market never reaches it.

When can you trade?

The regular trading session on Indian exchanges runs Monday to Friday, from 9:15 am to 3:30 pm, except on exchange holidays. Prices do not change outside these hours, although news may arrive and affect the next day's opening.

What happens after a trade?

Indian equity trades are settled on a T+1 basis. That means the shares (or the money, if you sold) arrive on the next working day after the trade day. Your broker's app shows this clearly in your holdings and funds.

What are circuit limits?

To stop prices from swinging wildly in a single day, exchanges set limits on how far a share can move up or down. When a share hits its limit, trading in it is paused or restricted for a while. This protects investors from panic and sudden shocks.

A mini glossary for beginners

Bull market
A period when prices are generally rising.
Bear market
A period when prices are generally falling.
Volume
The number of shares traded in a period. High volume means lots of activity.
Market capitalisation
The total value of a company's shares: share price multiplied by the number of shares.
Dividend
A share of company profit paid to shareholders.
Stop-loss
An order that sells a share if it falls to a price you choose, to limit your loss.

Where to go next

Now that you know how trades happen, learn what a share is and how investors earn money, then see how to open the accounts you need. If you missed the basics, start with what the stock market is.