Functions of Stock Market
Stocks and shares are collectively referred to as 'equities' or 'securities' and represent an ownership stake in a company. Stock markets are the place where buyers and sellers exchange these securities.
A stock market may be physical or entirely virtual. The Bombay Stock Exchange (BSE) is physically located on Dalal Street in Mumbai City. Trading was traditionally done in person, but the option to buy/sell most stocks electronically was added later. Earlier, trading was initially done by telephone but is now primarily done by computer.
The process of exchange is generally for buyers to name a price they are willing to pay for a particular stock and for sellers to name their selling price. In physical markets, brokers and specialists match buyers and sellers, but this can be done entirely by the computer in virtual markets.
Following are some of the essential functions of a Stock Exchange:
- Providing liquidity and Marketability to Existing Securities:Stock Exchange provides a ready and continuous market for buying and selling securities. It provides a platform where shares can be sold and bought by buyers and sellers.
- Pricing of Securities:Based on the forces of demand & supply, Stock Exchange helps in putting a value on the securities which provide instant data to both buyers and sellers and thus helps in the pricing of securities.
- Safety of Transaction:All participants associated with a stock exchange are well regulated, and are required to work within the legal framework given by the regulator. Such a system ensures the safety of transactions. In India, all trading is regulated by SEBI.
- Contributes to Economic Growth: People get a chance to buy and sell their shares, letting them invest money. Stock exchange provides a platform by which savings get channelized into the most productive investment proposals, which leads to capital formation & economic growth.
- Spreading of Equity Culture: Stock exchanges have extensive information on the listed companies, which is further available to the public. This data helps in educating public about investments in securities which leads to spreading of wider ownership of shares.
- Providing Scope for Speculation: Securities, when purchased solely with a view of gaining profit through price movement to a target is called speculation. Stock exchanges provide scope within the provisions of law for speculating in a restricted and controlled manner.
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