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Stock Exchange: meaning, functions, objectives, importance, features

The meaning of the stock market
The stock exchange is an important factor in the capital market. It is a safe place where trading is done systematically. Here, securities are bought and sold according to well-structured rules and regulations. The securities listed here include bonds and shares issued by a public company that is correctly listed on the stock exchange, bonds and bonds issued by state administration bodies, municipalities, and public bodies.

What is a stock exchange?

Bonds are usually traded over the counter (OTC), but a few corporate bonds are traded on a stock exchange. It can enforce rules and regulations on brokers and firms registered with them. In other words, a stock market is a forum where securities such as bonds and stocks are bought and traded. It can be both an online business platform and an offline (physical location).

Exchange functions
Below are some of the most important functions that an exchange performs:

  • Role of Economic Barometer: The stock market serves as an economic barometer that shows the state of the economy. It records all major and minor changes in stock prices. It is rightly said that it is the pulse of the economy that reflects the state of the economy.
  • Valuation of securities: Stock exchange helps in the valuation of securities based on supply and demand factors. Securities offered by companies that are profitable and growth-oriented tend to be valued higher. Valuation of securities assists lenders, investors, and the government in fulfilling their respective functions.
  • Transaction security: Transaction security is ensured by the fact that the securities traded on the stock exchange are listed and the listing of the securities is done after the company’s position is verified. All listed companies must comply with the rules and regulations set by the governing body.
  • Contributor to economic growth: A stock exchange provides a platform for trading securities of various companies. This trading process involves constant disinvestment and reinvestment, which offers opportunities for capital formation and, consequently, economic growth.
  • Informing the public about investing in shares: The stock exchange helps to provide information about investing in the share markets and to encourage people to invest in securities by issuing new issues.
  • It offers scope for speculation: By allowing healthy speculation in traded securities, the stock exchange ensures the demand and supply of securities and liquidity.
  • Facilitates Liquidity: The most important role of the stock exchange is to provide a ready platform for the sale and purchase of securities. This gives investors confidence that existing investments can be converted into cash, or in other words, the stock market offers liquidity in terms of investments.
  • Better capital allocation: Profitable companies will have their shares actively traded, so such companies can raise new capital from the stock market. The stock market facilitates better allocation of capital for investors so that maximum profit can be obtained.
  • It promotes investment and savings: The stock market serves as an important source of investment in various securities that offer higher returns. Investing in the stock market is a better investment option than gold and silver.

Features of the exchange:
Stock Market – It is a healthy market where securities of government, corporate and semi-government companies are bought and sold.

Used securities– It is associated with bonds and shares that the company has already announced once.

Regulate securities trading – The stock exchange does not sell or buy bonds and shares on its account. The broker or members of the exchange trade on behalf of the company.

Trades only with registered securities – Only listed securities registered in the exchange office can be traded.

Transactions – Transactions in securities can only be made through authorized brokers and members.

Recognition – requires recognition by the central government.

Measuring device– Develops and shows the growth and security of the business in the stock market index.

Operates as per the rules – All trading of securities on the stock exchange is governed by the stock exchange rules and regulations and SEBI guidelines.

The importance of learning about the stock market
A brief knowledge of the stock market can help you clear the basics in business studies. This is an important topic to study not only from the exam point of view but also to know how the market works.

Understanding various trading techniques is essential to know practical approaches that help in the real market. . A trader can play business better if he understands it. For example, some exchanges will use algorithms alongside order driven markets and understanding this will help the trader get the most out of their trades. As a result, understanding the differences between bid-driven and order-driven business processes is quite beneficial.

The beginning of the stock market system
Although stock trading began very long ago in the 1500s in Antwerp. However, it is generally accepted that modern stock trading began with the stock exchange of the East India Company in London. Several businesses called East India obtained licenses from the British, French, and Dutch governments throughout the 17th century. All products returned from the East were transported by water, which involved dangerous journeys often plagued by violent weather and pirates. Shipowners routinely sought investors to provide financial security for the voyage to offset these dangers. In return, the investors earned a share of the financial profits if the ship returned safely, full of products for trade.

Image Source: BYJU’S

Also Read: What is Stock Market, History of its beginning, How does it Work?

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