Important Functions of Stock Exchange/Market

Important Functions of Stock Exchange/Market

The words stock markets paint a picture of a raging bull in your head. This is the first thing which will cross in the mind of an amateur. If you are planning to start trading, then you need to know everything there is about the stock markets and stock trading in India. Here we share a brief guide about the important functions of the share market and also how the share market works.

What is a Stock Exchange or a Share market?

A stock exchange is a platform where you can trade in financial instruments such as shares, bonds, derivatives, etc. It is also known as a share market. A stock exchange is where as an investor you can buy and sell securities.

A stock or a share represents the part of ownership that you have in the company. India has two major stock exchanges; the Bombay Stock Exchange and the National Stock Exchange.

How does a Stock Market Work?

The participants in the stock market are as follows:

  • SEBI- Stock Exchange Board of India
  • Stock Exchange
  • Brokers
  • Traders
  • Investors

How can one Invest in the Stock market?

If you are a company and wish to be traded in the stock market, then you need to first give an IPO or an Initial Public Offering. You need to draft an offer document with SEBI. The document will include details such as the shares being diluted and offered, the price band, etc. Once you receive and approval, the company opens up the shares to investors through an IPO.

Once the investors start bidding, the company starts issuing the shares. This is done in the secondary market where the shares are available to trade later. Next, are the stockbrokers and the broking agencies who are the intermediaries between the Indian share market and the investors. Brokers are the ones who do the transaction on behalf of the investors who want to invest in the share market.

Functions of the Stock Market

1.Stock Markets Provide Liquidity and Salability to Existing Securities

The stock exchange is a continuous market for trading securities. It is a platform where you can buy and sell the securities.

2.Stock Exchange Helps in The Pricing of Securities

The stock exchange puts a value to the securities. This is done on the basis of demand and supply. This also helps in providing instant data for the buyers and the sellers.

3.Safety

Each participant who is associated with the stock exchange is very well regulated by SEBI. These participants are required to work in the legal framework set by the exchange. Hence this provides safety of transactions.

4.Economic Growth

The stock market is one channel through which savings can be channeled into some productive investments. This leads to capital formation and economic growth.

5.Spreading Awareness About Equities

The stock exchange has a huge gamut of information of the listed companies. This information is available to the public and helps in educating them about investments in securities.

The stock exchange is an integral part of an economy. It offers opportunities for investments in securities and also a safe platform to do so.

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