Standardizing investments and letting equal and discrete shares of ownership be bought or sold by people in various companies is conducted through the stock exchange. Between investors and businesses, the stock exchange plays an important role in facilitating fund transfer that is regulated to maximize safety for investment. There are numerous stock exchanges and the economic performance of various countries is determined by leading stock exchanges.
Stock Exchange: Role and Function
The important functions done and performed by the stock exchange are provided here in detail:
- Equity Investment Awareness: From equity market investments to rolling out new issues and driving people to invest in securities, the stock exchange provides information on these.
- Safety in Transaction: Safety in transactional activities is ensured for listed stock exchanges where securities are traded. The securities listing is completed once the company’s position is verified. The listed companies must function by the governing body’s rules and regulations.
- Liquidity Facilitation: A platform ready for selling and buying securities is ensured by the stock exchange. This in turn lets investors confident in investments that are existing and can be potentially converted into cash, hence, regarding investment, the stock exchange offers liquidity.
- Encourage Investment and Savings: Investors expect greater returns for various securities where the stock market functions as a major source of investment. Compared to collateral options like gold and silver, stock market investments are better options for investment and savings.
- Scope for Speculation: Enabling and ensuring demand and supply of liquidity and securities, the stock exchange offers scope for speculation of securities that are traded.
- Economic Barometer: Right from indicating and recording the share price changes to reflecting on the state of the economy, the stock exchange plays an important role as an economic barometer.
- Builds Economic Growth: Various companies avail the securities trading platform offered by the stock exchange. Offering capital formation opportunities and eventually economic growth, the stock exchange continuously conducts the process of disinvestment and reinvestment.
- Securities Valuation: Based on crucial factors of supply and demand, the securities valuation is done with the help of the stock market. Valuation of securities varies depending on the facilitators where high-valued securities are offered by profitable companies that continue to grow in the market. This helps different functions of investors, creditors, and government to perform accordingly.
- Allocation of Capital: From the equity market, fresh capital is raised by companies that actively trade shares. This is mainly done by profit-making companies. Investors earn maximum profit through better capital allocation enabled by the stock market.
Stock Exchange: Features
The major features of the stock exchange and stock market are as follows:
- Registered Dealings: Trading only listed and registered securities that are recorded in the exchange office.
- Functions by Rules: At the stock exchange, all the dealings of security are controlled as per the rules and regulations of the exchange and abiding by the SEBI guidelines.
- Authorised Transactions: Securities transactions can only be conducted through members and brokers who are authorized.
- Recognition: The central government’s recognition is mandatory to function.
- Device of Measurement: In the index of a stock exchange, the growth and security of a business are developed and indicated.
- Regular Trade: The trade in securities is done by the exchange members or broker on behalf of the company. Hence, shares and bonds are not sold and bought by the exchange on their account.
- Market Platform for Securities: The buying and selling of securities of corporate companies, and government and semi-government companies are conducted in the stock market on a wider scope.
- Second-hand Securities: Previously announced shares and bonds by the company are referred to as second-hand securities.
Read more on ‘How Much Does the Stock Market Grow Every Year?‘ here.
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