Functions of a Stock Exchange

The stock exchange is a critical term in a capital market that purchases and sells bonds and securities issued by the public, government, and municipal bodies. Since trading is completed in an organised way, it is an entirely secure platform. The meaning of the stock exchange is concerned chiefly with the term shares. 

This article on the functions of a stock exchange offers detailed information on the stock exchange concept, the functions of bse and its various features. So, without further ado, let’s get started with the functions of a stock exchange.

Concept of Stock Exchange

A stock exchange can be described as a centralised location where trading takes place in a systematic and pre-defined method. Here, the shares of the publicly traded companies are sold and purchased. Although the bonds are mostly traded or OTC, also known as Over-the-Counter, the corporate bond is generally sold at the stock exchange. Certain rules and regulations are enforced on the firms and brokers enrolled along with them. In simple terms, the stock exchange has referred to a forum in which securities like stocks and bonds are sold and purchased. Note it is done both offline and online. 

Functions of a Stock Exchange  

Here is the list of several functions performed by the stock exchange. Let’s have a look – 

• Economic Barometer role – The stock exchange acts as an economic barometer which is the state’s indicative of the economy. If there are any small or big amendments in the share prices, the same is noted. 

• Valuation of Securities – There are several factors such as supply and demand based on which the Stock market promotes security valuation. There are securities that the companies offer that are growth-oriented and profitable. The security valuation helps the government, creditors, and investors to perform their respective functions effectively. 

• Transactional Safety – Transactional safety is termed as the securities which are traded in the stock exchange. The activity of listing securities is completed once the company’s overall position is verified. All the listed companies are bound to follow the rules and regulations set by the governing bodies. 

• Economic Growth contributor – The stock exchange provides a dedicated platform to trade securities of several companies. This trading process involves regular reinvestment and disinvestment, leading to the economy’s growth. 

• Making people understand equity investment – Stock exchange allows providing information regarding the investment in the equity markets. 

• The scope of speculation – The stock exchange promotes supply and demand of liquidity and security after permitting the traded securities healthy speculation. 

• Facilitates liquidity – ANother important role the stock exchange plays is enabling a ready platform for the purchase and sale of securities. It boasts a sense of confidence in the investor that the invested money will be soon turned into real cash. 

• Encourages savings and investment – In the world of investments, the stock market is an important term as it encourages savings and investments in several securities that offer great returns. Hence, making an investment in the stock market is a better decision than investing your money in silver and gold. 

Features of Stock Exchange 

There are several features of the stock exchange. These are listed below – 

• Security market – The security market is an aggregate market where the corporate companies, government, semi-government companies sell and buy securities. 

• Second-hand securities – The second-hand securities are the shares or bonds announced earlier on by any company. 

• Dealing in the registered securities only – According to this feature of the stock exchange, only the securities mentioned in the exchange office are open for trading. 

• Transactions – The transaction of the securities are made only by the members of the authorised brokers.

• Measuring device – It indicates and develops the security and growth of the business in the context of the stock exchange. 

• Recognition – The central government should recognise the stock exchange. 

• Operations as per the rule – The entire security deals are analysed and controlled as per the SEBI guidelines and rules and regulations made. 

Conclusion 

With this, we end our study material on the functions of a stock exchange. The role of the stock exchange is critical in a capital market that operates to purchase and sell bonds and securities issued by the public, government and municipal bodies. The shares of the publicly traded companies are sold and purchased. Although the bonds are mostly traded or OTC, also known as Over-the-Counter, corporate bonds are generally sold at the stock exchange.

In this article on the functions of a stock exchange, we studied the concept of the role of stock exchange in length. We covered several other topics such as the introduction of the stock exchange, functions of bse and features of the stock exchange. We hope the functions of a stock exchange must have helped attain a greater understanding of this topic.