The Bombay Stock Exchange (BSE) is a stock exchange in Mumbai, India. Were you aware of it? Or maybe about the NSE? Do you keep a close eye on the Sensex? But how much do we really know about the stock exchange and how it works? Let's take a deeper look at what is Stock Exchange & its functions along with its real purpose.
What is Stock Exchange?
The stock market, often known as the stock exchange, is the second layer of the capital market. The stock exchange is a virtual market where buyers and sellers of current securities trade. It is a market sponsored by an institute or other governmental entity where shares, stocks, debentures, bonds, futures, options, and other financial instruments are exchanged.
A stock exchange is a venue where buyers and sellers may meet. Brokers, agents, and people might all fall within this category.
The price of a product is determined by the laws of supply and demand. The Bombay StockExchange is India's most renowned stock exchange. India has a total of twenty-one stock exchanges.
National Stock Exchange of India Limited (NSE) Definition
A stock exchange is a vital component of the capital market. It is a safe environment where trading is done in a methodical manner. Securities are purchased and sold in accordance with well-defined norms and regulations. Before knowing what is stock exchange & its functions in detail, know the following!
What is security? Securities referred to here include debentures and shares issued by a publicly traded corporation that is properly listed on the stock market, as well as debentures and bonds issued by the government, municipal, and public entities.
Bonds are mostly traded over-the-counter (OTC), however, a few corporate bonds are exchanged on a stock market. It has the authority to impose rules and regulations on brokers and businesses that are enrolled with them.
In other terms, a stock exchange is a marketplace where securities such as bonds and stocks may be bought and sold. This may be both an online and offline trade platform (physical location).
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Stock Market Functions
1. Liquidity and Marketability
One of the most appealing aspects of the stock exchange is its ability to provide high liquidity. The securities can be sold and converted to cash at any time. It is a continuous market, and investors may easily divest and reinvest as they see fit.
2. Price Determination
The only way to determine the price of securities in a secondary market is through supply and demand laws. A stock market facilitates this process by maintaining a stable value of all securities. The Sensex index, which tracks the values of various firms' shares, may be used to track such pricing.
The stock exchanges are rigorously governed and regulated by the government. The Securities Board of India is the governing body of the BSE. All transactions take place inside a legal framework. This gives the investor guarantees and a secure environment in which to engage in securities. This is one of the crucial points of what is stock exchange & its functions.
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4. Contribution to the Economy
As we all know, the stock market trades in securities that have previously been issued. However, these securities are constantly traded and resold. This permits monies to be mobilized and channeled rather than remaining dormant. This helps the economy.
5. Spreading of Equity
The stock exchange guarantees that securities are owned by a broader range of people. It truly teaches the general population about the security and rewards of investing in the stock market.
It ensures higher transaction quality and easy operation. The goal is to attract more public investors and disseminate ownership of assets for the benefit of everybody.
It is common knowledge that the stock exchange is a speculative market. While this is correct, the conjecture is limited by the legal framework.
A fair dosage of speculative trading is required for the stakes of liquidity and price setting, and the stock market offers us such a platform.
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7. The Stock Exchange Acts as an Economic Barometer
The stock exchange acts as an economic barometer, indicating the status of the economy. It tracks all significant and little changes in share prices. That’s what is stock exchange & its functions are.
8. Securities Valuation
The stock market aids in the pricing of securities based on supply and demand. Securities issued by firms that are profitable and growing tend to be more valuable. Securities valuation assists creditors, investors, and the government in carrying out their respective tasks.
9. Better Cash Allocation
Profitable firms will have their shares actively traded, allowing them to raise new capital from the equity market. The stock market assists investors in effectively allocating capital so that they can benefit the most.
10. Encourages saving and investing
The stock market is a major source of investment in numerous assets that provide higher returns. Investing in the stock market is a better long-term investment than gold and silver.
Hence, with this, you have known what is stock exchange & its functions!