Stock Market and Stock Exchange

But how much do we actually understand about the stock exchange and its functioning? Let us take a closer look at the meaning, functioning and the importance of the Stock Exchange.

Functions of the Stock Exchange

Liquidity and Marketability:

One of the main drawing factors of the stock exchange is that it enables high liquidity. The securities can be sold at a moment’s notice and be converted to cash. It is a continuous market and the investors can divest and reinvest with ease as per their wishes.

Price Determination:

In a secondary market, the only way to determine the price of securities in via the rules of supply and demand. A stock exchange enables this process via constant valuation of all the securities. Such prices of shares of various companies can be tracked via the index we call the Sensex.

Safety:

The government strictly governs and regulates the stock exchanges. In the case of the BSE, the Securities Board of India is the governing body. All transactions occur within the legal framework. This provides the investor with assurances and a safe place to transact in securities.

Contribution to the Economy:

As we know the stock exchange deals in already-issued securities. But these securities are continuously sold and resold and so on. This allows the funds to be mobilized and channelized instead of sitting idle. This boosts the economy.

Spreading of Equity:

The stock exchange ensures wider ownership of securities. It actually educates the public about the safety and the benefits of investing in the stock market. It ensures a better quality of transactions and smooth functioning. The idea is to get more public investors and spread the ownership of securities for the benefit of everyone.

Speculation:

One often hears that the stock exchange is a speculative market. And while this is true, the speculation is kept within the legal framework. For the stake of liquidity and price determination, a healthy dose of speculative trading is necessary, and the stock exchange provides us with such a platform.

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