Secondary Market & Stock Exchanges
Once an IPO is over, the company’s role in selling shares ends. Now, the Secondary Market takes over. This is where investors trade with each other. It's the bustling marketplace where billions of rupees change hands every day.
What You Will Master Today
- Secondary Market: The 'Used Car' market for shares.
- The Big Two: Understanding BSE and NSE.
- Trade Lifecycle: What happens when you click 'Buy'?
- Settlement: The T+1 Cycle explained.
- Market Cap: Classifying companies by size.
- Circuit Breakers: How exchanges stop panic.
1. What is the Secondary Market?
The Secondary Market is where previously issued securities (stocks, bonds) are bought and sold among investors. The company (like Reliance or Infosys) is not involved in these transactions and does not receive any money from them.
🚗 The 'Used Car' Analogy
Primary Market:
You buy a new car from the showroom. The money goes to the Car Company.
Secondary Market:
You sell that car to your neighbor. The money goes to
YOU
, not the car company. The Stock Exchange is simply the platform (like OLX or Cars24) that facilitates this trade.
2. The Giants: BSE vs NSE
India has two major national stock exchanges where trading happens.
BSE (Bombay Stock Exchange)
Dalal Street, Mumbai
Established: 1875 (Asia's Oldest).
Listed Companies: ~5,300+ (Highest).
Benchmark Index: SENSEX (Sensitivity Index of 30 stocks).
Known For: History, stability, and small-cap listings.
NSE (National Stock Exchange)
BKC, Mumbai
Established: 1992 (First electronic exchange).
Listed Companies: ~2,000+.
Benchmark Index: NIFTY 50 (Index of top 50 stocks).
Known For: High Volume, Technology, Derivatives (F&O).
3. How Does a Trade Happen? (The Lifecycle)
When you click "Buy" on your app (like Zerodha or Groww), a complex process triggers instantly. Here is the simplified flow:
- Order Entry: You place a Buy order via your broker.
- Matching: The Stock Exchange (NSE/BSE) computer finds a Seller offering the same price. This is called "Order Matching".
- Clearing: The Clearing Corporation (NSCCL/ICCL) steps in to guarantee the trade.
- Settlement: Shares are moved from the Seller's Demat to your Demat, and money is moved from you to the Seller.
4. Understanding Settlement: T+1 Cycle
India is one of the fastest markets in the world. We follow the T+1 Settlement Cycle .
- T (Trade Day): You buy shares on Monday.
- T+1 (Tuesday): By Tuesday evening, the shares will be in your Demat account, and you can sell them if you wish.
Previously, this was T+2, and long ago, it took weeks to exchange physical share certificates!
5. Market Capitalization: Size Matters
Companies in the secondary market are categorized by their total value (Market Cap = Share Price × Total Shares).
| Category | Rank (By Value) | Risk/Reward |
|---|---|---|
| Large Cap | Top 1-100 | Stable, Low Risk, Moderate Growth. (e.g., Reliance, TCS) |
| Mid Cap | 101-250 | Growing companies, Moderate Risk. |
| Small Cap | 251 onwards | High Risk, High Potential Reward. |
6. Circuit Breakers: The Emergency Brakes
What happens if the market crashes by 10% or 20% in a single day? To prevent panic, exchanges have Circuit Breakers .
If an index (Sensex/Nifty) falls by 10%, trading is halted for 45 minutes to let investors cool down. Similar limits (Upper/Lower circuits) apply to individual stocks (except F&O stocks) to prevent manipulation.
Frequently Asked Questions
Why are there two stock exchanges (BSE & NSE) in India? ▼
BSE is the oldest, established in 1875. NSE was set up in 1992 to introduce modern electronic trading. Both provide competition, ensuring transparency and better liquidity for investors.
What is the T+1 Settlement Cycle? ▼
T+1 means 'Trade Date + 1 Day'. If you buy a stock on Monday (T), the shares will be credited to your Demat account by Tuesday (T+1). This makes the process very fast.
What happens if a stock hits the Upper Circuit? ▼
An Upper Circuit is a limit (e.g., 5%, 20%) set to control volatility. If a stock hits this limit, trading halts for that stock because there are buyers but no sellers willing to sell at that price.