Stock exchange simply means buying and selling securities. Securities that are traded on a security exchange are: stock issued by the listed companies, unit trusts, derivatives, pooled investment products and bonds. The stock market is also known as “continuous auction”. It is important that the securities that are being traded are listed in the stock exchange market. The stock exchange market is not a physical space but a modern market where all the transactions take place on electronic communication networks. One of the important features is that in the stock exchange market, transactions are done according to certain rules and regulations. All the debentures, bonds, securities issued by the companies, government, Municipal and public bodies should be listed on the stock exchange. The price of the securities are decided according to the factors of demand and supply. The price of securities issued by the growth-oriented organisations is generally higher. It is important that people contact only the authorised brokers and members for participating in the stock exchange. A stock exchange needs to be recognised by the central government.
Stock exchange is a means of expansion for the companies by raising funds. Stock exchange gives chances to the common people to invest in corporations. The corporations linked to the stock exchange provide ample job opportunities to the people. Few points that may explain the importance of stock exchange are as follows:
● Expansion of Companies: A company cannot work on its own only by employing people or setting up the Machines. Funds are required to set up a company and expand it further. The companies raise funds by providing the shares of the company for sale. The first step is to get the shares of the company listed on the stock exchange. Then the investor can buy the publicly issued shares and the funds are thus raised. The raised fund can be used for expansion of the business( by installing new machines, buying other companies, employing you people,etc).The investments,expansion and other business related activities boost the economic growth.
● Investment by common people: Stock exchange gives a chance to the common people to invest in the shares of business companies. Stock exchange provides a chance for practicing trading, educating the public about investment,etc. It also encourages people to save a part of their income and invest it in buying securities. Stock exchange channels the savings of the public into productive investments rather than assets like gold, silver, etc. This leads to capital formation and economic growth.
● Generating jobs and career opportunities: There are several factors involved in stock exchange which include banks, brokerage firms, news agencies,etc. There are hundreds of people working in these organisations. Stock exchange provides them new and innovative job opportunities. Stock exchange deals in monetary information and therefore it has well paid jobs and promises a great career in future. The sudden rise and fall in the stock market provides news to the financial news agencies.
● Provides liquidity: Stock market is a place which provides ready market for selling and buying the securities. The stock market gives common people an assurance that
their securities can be converted into cash as and when required. It provides a sense of security to the investors and helps them to invest in long-term securities without hesitation. They also have the provision to convert long term investments into short term investments or medium term Investments.
● Helpful to the government: Stock exchange not only provides financial aid to the investors and common people but also to the government. There must be times when the government wants to start a new project but fall short of funds. In this case the government also seeks help from stock exchange just like the companies but instead of issuing shares, government issues bonds. Public buys these issued bonds. the government gets their funds and the public gets an assurance of an increase in their investments. An economy works on the wheels of demand and supply. The demand of funds by the government and companies and the supply of these funds by the stock exchange market. Stock exchange helps all sectors of the economy in their growth and expansion. It helps the government to complete their project for the Welfare of the public. It helps the banks and Financial Institutions to make more money. It helps the common public to channelise the savings into investments and earn money.