Who Buys and Sells in the Stock Market?
Lesson Objective
By the end of this lesson, you will understand:
- Who participates in the stock market
- Why different participants behave differently
- How their actions influence prices and volatility
1️⃣ Why Market Participants Matter
The stock market is not a single entity.
It is a place where millions of different participants buy and sell shares for different reasons.
Understanding who is trading helps you:
- Avoid panic during volatility
- Understand sudden price movements
- Invest with realistic expectations
2️⃣ Retail Investors (Individual Investors)
Who are they?
- Everyday individuals like you and me
- Trade using brokers such as Zerodha, Groww, Upstox
Characteristics:
- Smaller investment size
- Mostly long-term focused
- Influenced by news, social media, emotions
Impact on Market:
- Limited price influence individually
- Collective buying/selling can move prices
Example:
A salaried professional investing ₹10,000 every month in stocks or mutual funds.
3️⃣ Institutional Investors
Who are they?
- Large organizations managing big money
- Examples:
- Mutual Funds
- Insurance companies
- Pension funds
- Foreign Institutional Investors (FIIs)
Characteristics:
- Large capital
- Professional research teams
- Long-term and data-driven decisions
Impact on Market:
- Can move prices significantly
- Their entry or exit creates trends
Example:
A mutual fund buying ₹500 crore worth of shares in a company.
4️⃣ Foreign Institutional Investors (FIIs)
Who are they?
- Institutional investors from outside India
Why FIIs matter:
- Bring foreign capital into Indian markets
- Strong influence on market direction
Effect on Markets:
- FII buying → markets usually rise
- FII selling → markets often fall
Important:
FII activity affects market sentiment, not company fundamentals.
5️⃣ Traders (Short-Term Participants)
Who are they?
- Participants focused on short-term price movements
Types of Traders:
- Intraday traders
- Swing traders
- Derivatives traders
Characteristics:
- High frequency of trades
- Higher risk
- Emotion and timing sensitive
Impact on Market:
- Increase liquidity
- Increase short-term volatility
Note:
Trading is not the same as investing.
6️⃣ Market Makers
Who are they?
- Institutions that continuously buy and sell shares
Role:
- Provide liquidity
- Reduce large bid–ask gaps
- Enable smooth trading
Without market makers:
- You may not find buyers or sellers easily
7️⃣ Regulators (SEBI)
Who are they?
- Securities and Exchange Board of India
Role of SEBI:
- Protect investors
- Ensure fair and transparent markets
- Prevent fraud and manipulation
Important:
SEBI does not decide prices, but ensures fair play.
8️⃣ How All Participants Interact Together
| Participant | Main Goal | Market Impact |
|---|---|---|
| Retail Investors | Wealth creation | Limited individually |
| Institutions | Long-term returns | Strong influence |
| FIIs | Global allocation | High volatility impact |
| Traders | Short-term profits | Liquidity & noise |
| Market Makers | Smooth trading | Stability |
| SEBI | Regulation | Trust & safety |
9️⃣ Key Takeaways
✔ Markets move because of collective actions
✔ Big players influence trends, not daily noise
✔ Retail investors should focus on long-term goals
✔ Understanding participants prevents emotional decisions