Know the Various Types of Market Participants

7 min read • Updated 12 January 2023
Written by Chandhana Padma

The stock market consists of various types of participants who operate together to make its operations successful. As an investor, it is advisable for you to have a clear insight into the roles of each of these members. It will help you gain a better understanding of the share market and how it works. 

What Are the Various Types of Stock Market Participants? 

The types of stock market participants are as follows:

  1. Regulatory Body

The regulatory body of the stock market is the Securities and Exchange Board of India (SEBI). Its main function is to ensure that the market operates in a fair, transparent, and efficient manner and it makes rules and regulations for the same. Moreover, it also takes measures to ensure that the interests of retail investors are safeguarded. 

Some of its major roles are as follows:

  • Regulating stock market activities
  • Granting investment advisory licenses
  • Taking measures to prevent malpractices and fraud
  • Conducting awareness programmes 
  • Developing guidelines and codes of conduct for financial intermediaries
  • Conducting inquiries and audits
  • Registering and regulating intermediaries like merchant banks, brokers, sub-brokers and more
  • Imposing penalties upon the violation of rules   
  1. Stock Exchanges

Exchanges are a vital component of the stock market. They are places where you can buy and sell securities like stocks, bonds, commodities, derivatives, mutual funds, and more. Stock exchanges in India adhere to the guidelines set by the SEBI. Companies can get themselves listed on the exchanges for trading their shares with the public. 

There are two primary stock exchanges in India – National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).  

  1. Listed Companies

All shares you buy and sell on the stock market belong to companies that are listed on the exchanges. They are businesses that have offered their stocks to investors via an Initial Public Offering (IPO) and have become public. 

By purchasing shares, you get part ownership of an organisation and gain from your investment as the company appreciates in value.   

  1. Investors and Traders

Investors and traders are the primary participants in the stock market. A trader is a person who buys and sells in a short period of time in order to reap profits from price fluctuation. Alternatively, an investor is an individual who purchases stocks of companies and holds them for a longer duration of time in order to achieve significant gains in the long run. 

In general, there are three types of investors:

  • Retail Investors

Retail investors are individuals who invest smaller sums on their own by analysing the market via the news or various resources. They usually invest as a single entity. 

  • Institutional Investors

Institutional investors are organisations that invest money in the stock market on behalf of their clients. Financial bodies like banks, Asset Management Companies (AMCs), pension funds, insurance companies, etc. fall under this category. They can be both domestic and foreign. 

  • High Net-worth Individuals

High Net-worth Individuals (HNIs) are people who have the capacity to invest huge amounts of capital (usually in crores) in the stock market. They conduct in-depth market research and analysis before making any investment. Furthermore, they also have better access to information than retail investors.  

  1. Stock Brokers

Stock brokers are companies that generally work on behalf of individual or institutional investors. They act as a bridge between stock exchanges and investors in the stock market. Their main goal is to help investors in buying and selling transactions. 

  1. Intermediaries

In the stock market, there are various transactions other than the ones between buyers and sellers. These are performed by market intermediaries to ensure that every order is fulfilled and all operations go on smoothly. 

They can be classified as follows:

  • Depositories

Depositories are primarily responsible for storing securities in an electronic or dematerialized format. In India, there are two depositories. They are – Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL). 

To avail of the services offered by these entities, you need to contact a Depository Participant (DP) and open a Demat account. In India, commercial banks, foreign banks, public and state-operated financial institutions, NBFCs, stoke brokers, etc. can act as depository participants.  

  • Clearing Houses

Clearing corporations or houses are financial institutions that clear and settle all transactions that occur on the stock exchange. They provide a guarantee that all transactions occurring on the exchange will be duly executed. Their main role is to make sure that the buyer receives the securities and the seller receives the payment.  

These institutions have clearing members who help conduct all their activities. The NSE Clearing Limited (NSE Clearing) is an example of a clearing house in India. It is a subsidiary of the National Stock Exchange and is responsible for settling and clearing all its trades. 

  • Clearing Banks

Clearing banks also play an important role in the stock market. They act as a link between clearing houses and their members. According to the guidelines, every clearing member needs to have an account at a clearing bank in order to settle funds and other obligations with the clearing houses.  

  1. Transfer Agents

Transfer agents are official keepers of shareholder records. They perform several activities like providing companies with a list of their stockholders, affecting the transfer of beneficial ownership, processing corporate actions like cash dividends, stock rights, collating proxy forms, etc. 

  1. Investment Advisors

Investment advisors are individuals or institutions that provide investment advice to their clients. They also provide services like market analysis, industry trend reports, and more in exchange for a commission. 

  1. Credit Rating Agencies

These agencies are responsible for providing reviews on the creditworthiness of a company or security. They help investors determine whether an investment is worth making by offering a credit rating reflective of the underlying entity’s creditworthiness. 

For instance, an organisation with excellent creditworthiness may get a “triple A” credit rating, whereas, companies having low creditworthiness may get a “double B”. Major credit rating agencies in India include Credit Rating Information Services of India Limited (CRISIL), Credit Analysis & Research (CARE) and Investment Information and Credit Rating Agency of India Limited (ICRA). 

Final Words

The stock market functions optimally because of all the mentioned participants. Now that you have a deep understanding of this matter, make sure to conduct thorough market research and start your investment journey.   

Frequently Asked Questions

What is a Demat account?

A Demat account enables you to store your securities in an electronic form. It enables electronic transactions of securities; hence, it is mandatory to have one if you wish to invest in the stock market.

Where can I find stock-related information?

You can find stock-related information in a company’s annual reports, various websites, newspapers, etc. Being associated with a reliable brokerage platform also helps in this regard.

Can I trade when the stock market is closed?

No, but you can place buy or sell orders with your brokers when the stock market is closed. However, they will remain in the queue and be executed only when the trading session of the market opens on the next working day.

What are the four stages of a stock cycle?

The four stages of a stock cycle are accumulation, markup, distribution, and markdown. Identifying these stages will help you to know the right time to buy, sell or hold your stock investments.

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Chandhana Padma

Investment Associate
Chandhana is a budding investment professional with growing expertise in the capital markets. She has completed her Bachelors in Business Administration with a specialisation in Finance from Christ (deemed to be) University,Bangalore. She is also a CFA L2 candidate. She is currently working as an Investment Associate at Wint Wealth.

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