Definition: Stock Exchange is the place where the shares of all the publicly traded companies are bought and sold. This is one of the important constituents of the capital market. This is an organized platform of the market in which buying and selling of the industrial and financial securities are traded.
It is treated as the safest place to put your investment in as the exchange will give the guarantee to their traders or the investors in case of any frauds. In the stock exchange, it should not be treated as the place to do the speculation or gambling.
Stock exchanges are different from the other exchanges as because the traded assets are just limited to the stocks, bonds and the (ETF’S) Exchange Traded Funds. It provides various functions and offers useful services to the investors and the borrowing companies. This is an investment intermediary that is useful to facilitate the economic and industrial development of the country.
What is the difference between the Stock Exchange and Over-the-counter (OTC)?
In the stock exchange, the shares or the particular assets that are listed in the exchange are not customized whereas, in the Over-the-counter market the shares or the particular assets are available for customization. In the stock exchange, the market is formal and regulated by the laws and in the over-the-counter market, they are less formal and less regulated.
In the stock exchange, it involves with less risk as the exchange gives the guarantee to the investor or the trader that their trade will be handled safely whereas, in the OTC market they are more risky with comparison of the stock exchange as the OTC market will not give the guarantee to the investors or the traders.
Purpose of the Stock Exchange
When the company want to raise the capital by issuing the shares then the owners of the company makes the step for Initial Public Offering (IPO) in which the common investors need to subscribe their shares in the IPO from which they get the funds and is important for the company in order to raise the capital from the investors or the traders.
In India, there is a primary two exchange where most of the traders or the investors are trading or investing. One is the Bombay Stock Exchange (BSE) the oldest exchange in India and the second one is the National Stock Exchange (NSE).
Features of the Stock Exchange
1. Market for Securities
Stock Exchange market is a market, wherever securities of company bodies, government and semi-government bodies are bought and sold.
2. Deals in used Securities
It deals with shares, debentures bonds and such securities already issued by the businesses or the companies. Briefly it deals with existing or used securities and hence it’s known as secondary market.
3. Regulates Exchange Securities
Stock Exchange market doesn’t purchase or sell any securities on its own account. It just provides the mandatory infrastructure and facilities for exchange securities to its members and brokers who trade in exchange securities. It regulates the trade activities therefore on guarantee free and honest trade.
4. Allows dealings solely in listed securities
Stock exchanges maintain a political candidate list of securities that would be purchased and sold on its floor. Securities that don’t figure within the official list of securities market are known as unlisted securities. Such unlisted securities cannot be listed within the securities market.
5. Transactions settled solely through members
All the transactions in securities at the stock exchange market are settled solely through its authorized brokers and members. Outsiders or direct investors don’t seem to be allowed to enter within the commerce circles of the securities market. Investors need to purchase or sell the securities at the securities market through the authorized brokers solely.
6. Association of Persons
A securities market is an association of persons or body of people which can be registered or unregistered.
7. Recognition from Central Government
The Stock exchange market is an organized market. It needs recognition from the Central Government.
8. Working as per Rules
Buying and selling transactions in securities at the stock exchange market are ruled by the foundations and laws of securities market likewise as the guidelines provided by SEBI. No deviation from the foundations and pointers is allowed in any case.
9. Specific Location
Stock exchange market may be an explicit market place wherever authorized brokers close daily (i.e. on operating days) on the ground of market known as trading circles and conduct commerce activities. The costs of various securities listed are shown on electronic boards. When the operating hours market is closed. All the operating of stock exchanges is conducted and controlled through computers and electronic system.
10. Financial Barometers
Stock exchanges are the money barometers and development indicators of financial set-up of the country. Industrial growth and stability is mirrored within the index of securities market.
Through this blog on “What is Stock Exchange?” you will come across the basic details for the exchange and the purpose in the stock market. Most of the traders or the investors believe and has the trust to do the trading or investing through the stock exchange only. Trading Fuel is our blog site that gives informative materials to the learners of the stock market and the financial world. Hope that you like this blog as we tried to present it in simple and easy language. For any further suggestion, you can directly contact us through mails. Happy Learning and read the more interesting topics of the stock market from our blog site.