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What is a Stock Exchange? What are the features and functions of Stock Exchange?

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If you are thinking of investing a huge amount of money in a business, then you must have considered the share market. Share market is something that you have listened to before, even if you are not a businessman. It also has a significant role in affecting a country’s economic system. If you are interested in the share market but have no idea what it is and how it operates, this article might help you get a basic idea about the stock exchange and share market.

What is a Stock exchange?

The stock exchange is a market where traders can buy or sell shares or securities systematically and formally. It must further be issued by the government bodies as well as public and municipal bodies. The buyer can purchase the securities, or the seller can sell, maintaining specific and well-defined rules and regulations.

Stock Market

A stock market is a place where investors can buy and sell their shares. Some rules and regulations must be maintained given by the government during the buying and selling procedures. These rules are made to safeguard the investors.

Stock exchange Vs. Stock market

You might think about the difference between the stock exchange and the stock market. Let me explain the difference.

Stock Exchange

Stock Market

Stock Exchange is an organization or association with infrastructure The stock market is not an organization. It is a place where stock traders take place
It can be virtual or physical Mostly a stock market is a physical entity
Without a stock exchange, there is no formal way of trading for the companies Without the stock market, there will be no traders
It the platform for meeting buyers and sellers It’s the market where stocks are traded
Stock Exchange works to complete the procedures after trading stock It does not do anything to complete the trade

Features of stock exchange

If you are wondering about the stock exchange features, you will probably find many of them. We can shorten the list to 4.

Organized marketplace

There will always be a committee like the exchange management committee to ensure the securities and exchange procedures safely. If you are a new one to the market management committee is always there to guide you.

Present electronic medium

Once upon a time, the buying-selling procedure was run in the buyer and seller’s bodily presence when the stock market regulated. It’s a time-killing and lengthy process. But with the growth of technology, it is controlled over the internet.

Dealing through only authorized member

Investors can buy or sell shares or securities in the stock exchange only through the exchange’s authorized or licensed member.  Only authorized members can go on the stock exchange.

Various concerns regarding securities

The securities and the securities must be issued and listed by the stock exchange before your business. To make your securities listed on the stock exchange, you have to fulfill specific criteria and conditions.

Income source of a stock exchange

You might think why a stock exchange does so many tasks, what is its interest here! Well, the share market is the source of its income. It collects fees from listed companies, contract fees, listing fees, and commission on the bought or sold product.

A question may arise, is the stock exchange necessary? Yes, if you have money and want to invest it in something, then the stock exchange does that on your behalf.

The stock exchange is a good source of increasing and developing our assets. It researches the market strategy and invests your money in different companies so that the investment remains quite safe. Though, you might have to face loss sometimes. A share price drops due to many reasons. Such as the company is facing loss or it is involved with corruption.

Besides the stock exchange, individual or institutional investors can invest in a company by themselves. Still, they have to follow the government rules for this, but the stock exchange is the safest way. Stocks or shares are often sold in the stock market.

Work of stock exchange

You might think when a company sells their share! They usually sell their share when they need more investment and want to expand. And the share price varies from time to time. It depends on the supply and the demand. Sometimes companies create artificial crises and ask for higher prices to sell their share.

If you own a share, then you might get invited to the general meeting of that company. If you own a large number of shares of a company, your opinions and votes are more admired. You can sell the shares anytime you want. If the company makes a benefit, then you own a percentage of that income.

Despite having many positive vibes, you cannot ignore the dark side of a shared business. Sometimes due to the loss of the company, share price incredibly drops. And investors who invested on that company faces massive loss. Sometimes investors do not get their invested money at all, and they become broke overnight.

Share market business cannot be continued depending on luck. It would help if you learned about the market strategy. You should not invest all your money in a single company; instead, invests in multiple companies. Sometimes you might need to take the risk. Share market business can be very profitable if everything goes as per your research and prediction.

Role and functions of stock exchange in stock market

Stock exchange from its beginning in 1600 in Amsterdam has brought revolutionary changes in the world economy.  Let’s check out the role and functions.

Individual investors

Imagine a scenario of every investor having a company of his own doesn’t matter how small it is. The stock exchange brings the investors the opportunity to put their money on business even without owning a company or managing all its stuff. It is simpler and hassle-free for every investor or shareholder.

Liquidity Maintenance

The company itself determines the stock’s valuation in the stock exchange for a company based on the investor’s opinion and attitude of specifying the stock price as high or low!  This combined effect helps create a liquid market, and so the buyer and seller are equally determined regarding the current stock price.

Role in Economic Barometer

Firstly, if you are an investor, it doesn’t matter how little your investment is compared to big companies; you are already contributing to your country’s economy.

However, the company will thrive with time, and the dividends you will get will increase. Now think, thousands of investors are pouring their money into the stock exchange.

A lot of money is in business, and a country’s overall GDP will surely grow up within time. This is how it serves as an economic barometer recording all the investment records of investors.

Misconception

Another question that may arise in your mind, what is the difference between the share and the company property?

  • Legally you do not own the company’s property. You just own a share.
  • If a company goes bankrupt, the court can sell its property, but the court cannot sell your share.
  • You cannot sell a company’s property if you are broken, but the company can share all of its

Findings

Stock exchange ensures better Capital allocation, and the companies can collect fresh capital from the equity market. To make a profitable transaction in a stock exchange is quite simple, but it takes time to gather sufficient knowledge and experience to know the way.

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