How the Indian market works

🎯 In 30 seconds: Your broker sends your order to an exchange (NSE or BSE). The exchange's computer matches it against other people's orders by best price first, then earliest time. A clearing corporation then steps in as the buyer to every seller and the seller to every buyer, collects money and shares, and settles the trade the next working day (T+1). Your shares land in your demat account, recorded at NSDL or CDSL. There are no market makers buying your order in the cash market, and your broker is not allowed to match it privately.

One order, followed all the way

It is 11:02 am on a Tuesday. Priya, a second-year engineering student in Coimbatore, opens her broker's app and buys 10 shares of hypothetical Sharma Foods Ltd at ₹640, a total of ₹6,400. The app says "Executed" within a second.

That second hides a lot. At least six organisations touch her order before she truly owns those shares on Wednesday. Each one has a job, and knowing who does what helps you understand fills, delays, charges and where to complain when something breaks.

The cast of characters

Who	Examples	What they do for Priya's order
Investor	Priya	Decides what to buy, at what price, and pays.
Stock broker (trading member)	Any SEBI-registered broker	Checks she has the money, sends the order to the exchange, reports the trade, sends the contract note.
Stock exchange	NSE, BSE	Runs the order book and matches buyers with sellers.
Clearing corporation	NSE Clearing Ltd; BSE's clearing corporation (long known as Indian Clearing Corporation Ltd)	Becomes the counterparty to both sides, works out who owes what, and guarantees settlement.
Depository	NSDL, CDSL	Keeps the official electronic record of who owns which shares.
Depository participant (DP)	Often the broker itself, or a bank	Runs Priya's demat account on the depository's system.
Bank	Priya's savings bank	Holds her money until it moves to the broker or is blocked for a trade.

Above all of them sits SEBI, the regulator, which writes the rules every one of these firms has to follow. More on that in Who runs and polices the market.

Two big exchanges, one stock

India has two main stock exchanges for shares. BSE, in Mumbai, is the older one. NSE, also in Mumbai, was set up in the 1990s around fully screen-based trading and today carries the larger share of cash market trading. A third, the Metropolitan Stock Exchange, is much smaller.

Most large companies are listed on both NSE and BSE. The prices on the two are almost always within a few paise of each other, because any gap is quickly traded away. You choose the exchange in the order window, or your broker picks one for you.

A broker can settle trades from both exchanges through a single clearing corporation. This is called interoperability, and it has applied to the equity cash market since 2019. It is why buying on BSE and selling the same shares on NSE the next day works without fuss.

The order book: how a match happens

NSE describes its trading system as order driven: prices come from the orders investors place, not from dealers quoting prices. Every order is time-stamped when it arrives. Orders are matched on price-time priority: the best price goes first, and at the same price, the order that arrived earlier goes first.

Here is a simplified view of the Sharma Foods order book a moment before Priya's order arrives. This is the "market depth" you see in your app.

Buy orders (bids)	Bid price	Ask price	Sell orders (asks)
120 shares	₹639.50	₹640.00	45 shares
300 shares	₹639.00	₹640.50	210 shares
75 shares	₹638.80	₹641.00	500 shares

The best bid is ₹639.50 and the best ask is ₹640.00. The 50 paise gap is the spread.

Priya places a limit buy at ₹640 for 10 shares. The system finds 45 shares offered at ₹640.00, so her 10 fill at once at ₹640. The seller's order shrinks to 35 shares.
If she had placed a limit buy at ₹639, nothing would have matched. Her order would join the bid side behind the 300 shares already waiting at ₹639 and fill only if a seller comes down to that price.
A market order for 100 shares would take the 45 at ₹640.00 and then 55 of the 210 at ₹640.50. Larger orders in thin stocks can pay noticeably more than the price on the screen.

Longer bars mean more shares waiting at that price. A buy order at ₹640 or higher meets the sellers at the top of the right side first.

Who sold to Priya? She does not know, and the seller does not know her. Both sides deal with the exchange system, and once the trade is done, the clearing corporation becomes the buyer to the seller and the seller to the buyer. If the seller's broker fails to deliver, that is the clearing corporation's problem to sort out, not Priya's.

No market makers, no payment for order flow

In the US, most retail orders are sent by brokers to wholesale market makers, who pay the broker for the order flow and fill the trade themselves. That is why the US version of this chapter spends time on it (see the US course if you are curious).

The Indian cash market does not work that way. Your order goes to the exchange's order book and is matched against other orders there. Your broker cannot take the other side privately or quietly match you with another client off the exchange. Running a private book like that, outside the exchange, is the illegal "dabba trading" covered in Scams and red flags.

That does not mean every fill is perfect. In a thinly traded small company, the spread can be wide and the depth shallow. Bid, ask and liquidity shows how to check this before you trade.

Auctions at the open and the close

Continuous matching runs from 9:15 am to 3:30 pm IST. Two special auctions sit at either end:

Pre-open call auction (9:00 to 9:15 am). Orders are collected without matching, then a single opening price is worked out that lets the most shares trade. This stops the first trade of the day being set by one random order after overnight news.
Closing auction session. Since 3 August 2026, stocks that have futures and options end the day with a closing auction that sets their official closing price, while other stocks trade continuously until 3:30 pm. Under a SEBI circular of 15 October 2026, the auction moves to 3:30 pm to 3:40 pm from 7 December 2026.

The exact minutes and what you can and cannot do in each phase are in Market hours and settlement.

After the match: clearing and settlement

"Executed" means a match. It does not yet mean Priya owns the shares. India settles cash market trades on T+1: one working day after the trade day (T). The full market moved to T+1 in January 2023, after a phased start in February 2022.

On T the trade is matched. On T+1 the clearing corporation collects money from buyers' brokers and shares from sellers' demat accounts, then pays out.

Trade day (T). The trade is matched. Priya's broker blocks ₹6,400 plus charges from her trading balance. The broker sends her a contract note listing the price, time and every charge.
Clearing. The clearing corporation nets all the day's trades for each broker into one amount of money and one quantity of each stock to pay in or receive.
Pay-in on T+1. Buyers' brokers pay money to the clearing corporation. Sellers' shares are taken from their demat accounts.
Pay-out on T+1. The clearing corporation credits the shares. Since November 2024, SEBI requires the shares to go directly from the clearing corporation to the client's own demat account, rather than passing through a pool account held by the broker.

When Priya later sells, the shares have to leave her demat account. She authorises that either through a standing authorisation to her broker (DDPI) or by approving each sale with a TPIN from the depository. Your first trade walks through it.

Some brokers also offer an optional same-day settlement (T+0) for a list of large companies. It is covered in Market hours and settlement.

Where your money sits

India has tightened this a lot since 2022, after several brokers misused client money.

Upstreaming. Since July 2023, SEBI has required brokers to pass clients' unused funds to the clearing corporations at the end of each day (as cash or in a few allowed forms), instead of keeping them in their own bank accounts.
Blocking instead of transferring. SEBI also allows trading where the money stays in your bank account and is only blocked through UPI, similar to an IPO application. Under a November 2024 SEBI circular, large brokers have to offer either this option or a "3-in-1" account that links bank, trading and demat.
Your shares are in your name. Shares in your demat account belong to you at the depository, not to the broker. A broker going bust does not make your holdings its property. Money and shares held with a failed broker are a different story, which the next chapter covers.

Check two statements, not one

Your broker's app is not the official record. The depositories regularly email a consolidated account statement (CAS) showing what you hold. Compare the holdings in it with your app. If they ever disagree, believe the depository and ask questions.

Why this matters for a trader

Price-time priority rewards patience and punishes haste. A limit order joins a queue. A market order jumps it and pays the spread.
"Executed" is not "settled". Money from a sale is not withdrawable on the same day under T+1, and shares bought today only arrive in your demat account the next working day.
Exchange matters little for big stocks, more for small ones. Some small companies trade mostly on one exchange. Check where the volume is.
Every charge is on the contract note. Brokerage, securities transaction tax, exchange charges, SEBI fees, stamp duty and GST all appear there. See What trading really costs.
If the exchange or broker system goes down, your order may not reach the book. That is an operational risk you cannot see in the price. Choosing a broker covers how to judge it.

Try it

Open any large company's page on the NSE website and find the market depth: the top five bids and asks with quantities. Write down the best bid, best ask and spread.
Do the same for a small company you have never heard of. Compare the spread and the quantities. Which would cost you more to buy 500 shares of with a market order?
If you already have a demat account, open your latest CAS email from NSDL or CDSL. Find which depository holds your account and your DP's name.
Open any contract note your broker has sent. Find the trade time to the second, the exchange, and the line for each charge.

Check yourself

Two buy orders sit at ₹500. Order A came at 10:01:05 and order B at 10:01:02. A seller comes in at ₹500 for a small quantity. Which fills first? Answer: Order B. Same price, so the earlier time wins.
You buy shares on Monday and there are no holidays. When are they credited to your demat account? Answer: On Tuesday, T+1.
What does a clearing corporation do? Answer: It becomes the counterparty to both sides of every trade, nets what each broker owes, and guarantees settlement.
Name India's two depositories. Answer: NSDL and CDSL.
Can your broker fill your order against its own account or another client outside the exchange? Answer: No. Orders in the cash market are matched on the exchange. Off-exchange matching of this kind is illegal dabba trading.

🔄 How the Indian market works: from your tap to shares in your demat