As of now, we’ve seen how the markets allow us to sell and buy our desired stocks at a prevailing market price. But are we as individuals capable of buying stocks costing over 5 figures per share or reaching millions in share volume which costs well over hundreds of crores?

No. We are not the only entities investing in the market. In fact, our action of buying/selling 50-100 shares may not make much of a difference in the market. There are other participants who are capable of swaying the price of a stock when buying or selling. Some of the other participating entities in the stock market are:-

  • Institutional Investors = An institutional investor is an institution that invests in securities instead of an individual. These can be hedge funds, pension funds, investment banks, mutual funds, etc. A Foreign Institutional Investor is an investor or investment fund which invests in the securities markets of different countries. These are a great source of foreign capital as they bring in money from other countries and invest in our countries. They invest in the securities of countries that are growing and therefore provide more returns. 

Institutional buyers play a huge role in the market. They invest on behalf of their clients and possess know-how about things that normal retail investors don’t. They move the biggest positions and are the largest force behind the change in the price of shares. Their role is of such importance that 50% or more of almost every IPO in India is reserved for them.

  • Non-Institutional Investors = Although it looks like there are only institutional and non-institutional investors in the markets, there is a third type. We as middle-class individuals are non-institutional investors but fall under the head of ‘Retail Individual Investors’. 

As such an NII is an individual but with certain investing thresholds. For example, when considering an IPO, an NII is one who applies for more than Rs 2 lakhs worth of shares in an IPO. These are mainly High Net Worth individuals who can be further divided into bids of Below and Above Rs 10 lacs.

Another important market participant to be mentioned are the Depositories. However, depositories are back-end participants like brokers and banks. These are bank accounts for your shares. They help store securities in your Demat account and all brokers are Depository Participants (DPs) who provide their clients with trading platforms. India has two main Depositories: National Securities Depository Limited (NSDL) & Central Depository Services Limited (CDSL). 

The Depository is who maintains the shares, makes certain that the correct transactions are carried out, and ensures that all corporate actions like Stock Splits, Bonus shares, etc. are given to the correct shareholder. They also provide a collateral account that makes sure the shares can be properly pledged/hypothecated.

These are broadly the main investing and maintaining forces in the market that take care of the trading and generate returns for either themselves or their clients. But is it easy to generate returns? No, people have been known to lose all their investments due to rash and bad decisions. 

What if you are able to fool investors to give you their money by acting as a broker? They will be giving you the money to invest and generate significant returns for a commission, but what if your intentions take a wrong turn after seeing all that money? You could run away with their money, content, and rich leaving behind a group of disgruntled and cheated investors.

Moreover, a common scam that is seeing some traction is ‘suggestion groups’. These groups bring in innocent investors, on Social Media platforms like Telegram, who do not know much about investing and only care about gaining returns. They initially give good returns to these individuals by telling them to buy shares that are set to grow in a small time frame. 

When these fraudsters gain a large enough audience and have gotten their investors hooked, they tell their audience to buy a certain trash stock which they have a lot of. These stocks have insignificant value and are not bound to rise anytime soon. The unsuspecting investors buy these stocks at the absurdly high prices which these fraudsters are selling at and make a hefty profit at the cost of those retail investors.

Now, you’ve made a huge loss in the markets due to crooks. Would you ever consider jumping in again? Chances are that you won’t, no matter how attractive it seems. 

This is a huge loss for any country as an investment in securities improves economic activity, the absence of which could result in a slowdown in the economy. 

Therefore, to protect us, the Indian government has an investor protection unit called the Securities Exchange Board of India (SEBI). This entity was given power after the biggest securities fraud in India i.e. the Harshad Mehta Scam. SEBI protects us from fraudsters, companies, or individuals, and promotes healthy trading in the country.

Its influence extends to such an extent that all brokers and institutional investors are required to register themselves with SEBI in order to trade. Moreover, all companies trying to raise money from the public are required to get the approval of SEBI, failing which they are unable to float their IPO.

Now that you know of the existence of the market regulator, the securities watchdog, SEBI, you can safely invest with registered brokers and earn money. Happy investing!