What is stock exchange and its functions?
A stock exchange or stock market is a center where traders buy and sell shares of companies. Companies want to get their stock listed on the stock exchange. A big company usually has its stock listed on many exchanges across the world.
Now the point comes that what are the shares: Shares are a small part of a company, when someone buys shares in a company it means buyer owns a small piece of that particular company. Price of shares based on many different things. The main thing that affects the price of shares is the balance sheet between demand and supply. Let us know how it affects, if so many traders want to buy a stock then the price of that share goes high and if there is more sellers than the price of that share goes down.
Stock Market Functions:-
- Pricing of Securities: Stock market provides the platform to get the values of the securities on the basis of supply and demand factors. The securities are valued higher as there is more demand, through this way the price of securities is determined, more demand the more value of securities. Investors can know the value of their investments, thus; valuation of securities is very useful.
- Safety of Transactions: Each stock exchange is organized market and has its own law. Every member has to follow the rules similarly companies also have to follow the strict rules and regulations. This will ensure the safety of selling and buying through the stock exchange.
- Contributes to Economic Growth: Many company’s securities are bought and sold in stock exchange, investors can buy securities to get benefit and can sell in case of need of money. These processes of investment encourage the investors to invest their money in industries, thus economic development becomes possible.
- Spreading of Equity Cult: The stock exchange plays an essential role to encourage the investors to invest in ownership securities. Stock exchange guides the investors by giving them economic updates generally this information is published, by giving knowledge about investment and giving better trading practices and much more.
- Providing Scope for Speculation: When investors buy shares to get a profit as a result the changes in market price of that shares called speculation. Some scope of speculation must be allowed in order to provide liquidity to securities, share market provides this facility.
- Liquidity: The main function of the stock market is to provide a platform for buying and selling shares and through these investors get assurance that they can convert their investment into cash whenever they want. So, investors invest in long term investment without any hesitation because they can convert it into short term and medium term whenever they want.
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