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What is Stock Exchange
What is Stock Exchange? This is still a new question for those people who have recently joined the Stock Exchange or Share Market. Today we in this article What is stock exchange? And you will know about all the important information related to it.
Stock exchange is one of the most important components of the share market. Which provides the facility of Transactions to traders and buyers. For which they have to follow all the rules directed by (SEBI) Securities and Exchange Board of India.
and works to protect the interests of all investors. Mainly the stock exchange promotes the stock market. Let us understand in detail, what is stock exchange, and how it works:
What is Stock Exchange
Stock Exchange is mainly made up of two words, in which share means stock, and exchange means buying and selling. Which means stock exchange is an institution through which the stock market is run.
Investors and traders buy and sell stocks and securities only through the stock exchange. Let us tell you that investors can buy only those stocks, which are listed on the Stock Exchange. The stock exchange works only under the rules of SEBI.
Here usually the same companies are there, who collect money for business from the stock market. Any company which needs money, gets itself listed in the stock exchange. However, there are many rules and regulations for listing a company on the stock exchange.
But once the company is listed on the stock exchange, here investors can invest their money in the company. However, you cannot buy the stock of any company directly from the stock exchange, for this either you have to contact a broker, or you can invest money in the stock by creating a Demat Account or Trading Account.
Because all the brokers are members of the stock exchange, only through them you are provided the facility to invest in stocks. Let us tell you that before coming to the stock market, the company has to come in IPO (Initial Public Offering). After that its shares come in the stock market.
How Does The Stock Exchange Work
The stock exchange acts as an intermediary between the people investing in the stock market and the company. Whenever a company has to grow its business. So for that the company needs funds. For which the company publicly opens some of its shares to the public.
Where investors can invest money. But before that the company has to get listed on the stock exchange. Once the company is registered in the list of the stock exchange, then the investor can buy the stock with the help of a broker or Demat account. Everyday people buy and sell shares here.
If an investor has to sell a share, the trading system of the stock exchange automatically connects it with the investor who bought it. After which that investor can easily sell that share, and the order of seller and buyer is fulfilled. I hope you have easily understood how stock exchange works.
Benefits of listing a company on the stock exchange
When a company is listed on the stock exchange, it has many advantages. In this, along with the company, the general public also gets a lot of benefit. Let us know, when the company is listed on the stock exchange, what are its benefits –
1. The value of the company increases – When the company is listed in the stock exchange, its value increases. After coming into the stock market, the company can offer shares to the investor. This builds investor confidence, which is an effective way of building trust for the company.
2. Fundraising – When the company gets registered in the stock exchange, then after that the company starts raising funds. Share market is one of the most prestigious way of getting capital. Here when investors invest money in the company by buying shares, then with this money the company can operate itself in a better way.
3. Liquidity – The company increases the liquidity after listing, due to which the shareholders keep assessing the value of their invested money. Apart from this, the shareholder is also allowed to transact shares of the company, and share the risk or take advantage of the growth.
4. Getting a fair price – The price of a security listed on the stock exchange is determined by looking at its demand and supply. Because of which the investor gets the shares at the right price, then the company also gets the right value of their shares.
Ways To Invest in Stock Exchange
Any citizen can invest in the Indian Stock Exchange. There are mainly two ways to invest here, which are as follows –
1. Primary Market – Such companies come under the primary market, which bring their new shares or stock in the market, which is also called IPO. When an investor buys shares of a new company, he has to first buy shares from the primary market. Securities or shares are created from the primary market itself.
2. Secondary Market – The secondary market is also called the stock market. Because here the investor can trade in the shares without including the company. However, here the investor does not buy the stock directly from the company, rather the investor has to buy shares from other investors to buy the shares. The secondary market has two parts, the auction market and the dealer market.
Reputed Stock Exchanges of India
There are mainly two reputed stock exchanges in India:
1. Bombay Stock Exchange (BSE):- Bombay Stock Exchange (BSE) comes in the list of 10 oldest stock exchange in the world. Apart from this, it is also the oldest stock exchange in Asia. It was established in 1875 by cotton merchant Premchand Roychand, a Jain businessman, at Dalal Street in the city of Mumbai, India.
As of January 2022, 5,439 companies are listed in it, whose market cap is ₹ 276.713 lakh crore. Sensex is taken to see the performance of BSE. If Sensex increases, then BSE performs well. Same if the Sensex declines, then its performance is poor.
2. National Stock Exchange (NSE):- National Stock Exchange of India Limited (NSE) was established in 1992 in Mumbai. Which was recognized as the first dematerialized electronic exchange in the country. However, one of the objectives of establishing NSE was also to reduce the monopoly of BSE.
NSE has more than 2000 companies listed, and its market cap is US$3.4 Trillion as of 2022. NSE’s index is NIFTY 50, on the basis of which all the investors of the world do to measure the performance of India’s capital market.
History of Stock Exchange in India
The stock exchange in India started in 1875 with the Bombay Stock Exchange (BSE). Which was established by cotton merchant Premchand Roychand. Bombay Stock Exchange BSE is the oldest stock exchange in Asia. If we talk about the world’s oldest stock exchange, then the world’s oldest stock exchange is known as Euronext Amsterdam Stock Exchange, it was established in 1602 by the Dutch East India Company in the Netherlands.
In today’s time, the transaction of stocks is done through electronic system. In earlier times when there was no internet, all the work of the stock exchange was done on paper. If any investor used to buy shares, he was given a certificate for this, which was a certificate that the investor has shares of the company. However, at that time the entire paperwork used to take up to 6 months.
But in today’s time, since the introduction of electronic system, all the work related to the stock exchange is completed in a few days. Due to the computerization of the stock exchange, many new investors have also come to the stock market. Apart from this, it has become very modern in today’s time. Because of which any person can invest in the stock.
Features and Functions of Stock Exchange
- Shares are traded securely through the stock exchange.
- All the brokers who deal with the stock market are members of the stock exchange.
- The share price is determined by the stock exchange itself.
- Stock exchange provides liquidity in the stock market, you can buy or sell shares at any time.
- Stock exchanges reflect the economic progress of the country.
Final Word
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