Stock Exchange
What is Stock Exchange?
A stock exchange is a market setup where the buyers and sellers trade securities. The securities could be equity, bonds, debt instruments, or exchange-traded funds. The stock market works on the basic principle of matching supply and demand through an auction process.
The trading platforms follow the rules and regulations enforced by an authoritative body. The Securities Exchange Commission (SEC) oversees trading in the US. Online exchange has made trading convenient even for small investors and traders. Now they can easily track their purchases. They can buy or sell stocks in seconds.
Key points
An exchange is a market agreement that facilitates the exchange of securities among participants. It is a means of interaction between buyers and sellers.
It is governed by stock market regulators such as the Securities Exchange Commission (SEC).
listed companies are able to acquire funds, all thanks to the stock exchange. This is done through Initial Public Offerings (IPOs) published on the primary market. Using this structure, investors, traders, and speculators generate income from stock trading.
Characteristics of the stock exchange
The stock exchange is a framework recognized by the central government and operates under the direction of an authoritative body. It aims to ensure fair business practices and protect the interests of individual and institutional investors. This is achieved by keeping track of each transaction. In addition, brokers act as mediators between businesses and traders.
In this market, buyers and sellers can trade any listed security offered by companies or government organizations. The benchmark indicates the ups and downs of the market.In addition, the stock exchange also deals with secondary securities, that is to say those that companies have already issued.
Types
Stock markets are further classified into the following four categories:
Broker market
A market in which brokers determine the price by declaring the price to buy or sell securities at a specified value. This type focuses on the movement and efficiency of the market. Auction Market
: In such a market, the price is determined by the highest bid made by a broker and the lowest selling price accepted by the seller.
Over The Counter Exchange
The over-the-counter exchange facilitates the trading of securities through brokers. These are stocks that are not part of the major stock markets. Companies that are not listed sell their securities over the counter.
Electronic Exchange
Is a form of direct sale and purchase of securities on a virtual trading platform. Here, market makers have no role to play. The electronic communications network (REC) acts as a broker. In today’s era, almost all stock markets have an electronic trading structure
Stock exchange functions
The role of a stock market is not limited to the accumulation of capital; it is much more. Let’s see how:
There are many requests to buy and sell on the stock exchange, which can sometimes lead to an inefficient trade. It is therefore up to the Stock Exchange to validate each transaction. In addition, they ensure the proper processing of transactions, thereby eliminating any margin for error.
The prices of stocks and other financial instruments depend on supply and demand. Therefore, it is one of the functions of the stock market to accurately determine the price of a particular commodity. Therefore, any failure of such a mechanism could result in higher or lower remuneration for the product.
Each stock exchange reflects the country’s economy. It monitors the ups and downs of the market, the evolution of stock prices and the impact of price movements on the economy.
Facilitates the buying and selling of securities and other financial instruments on the open market. This, in turn, indicates a constant flow of money in the economy. Traffic is seen as a sign of a healthy economy.
Exchanges provide flexibility for investors and traders. They can buy and sell securities at any time (during trading hours).It is therefore a market which guarantees the liquidity of the funds entered by the participants.
The stock market motivates retail investors to participate in trading activities. It also pushes investors to invest in stocks in order to generate passive income.
Now, speculation is not always illegal; instead, a stock market strategically encourages a certain level of speculation. Speculation is essential to accelerate the demand for and supply of stocks.
Importance of the stock market
The movement of the prices of listed stocks determines the economic fluctuations prevailing within a nation. In addition, various companies apply for funding to run businesses and start new businesses. To raise capital, they issue various financial instruments, stocks and bonds.
In addition, investors often look for good returns on their money. The stock market offers them an option. The stock market is a popular choice for generating passive income.
