A stock exchange is a place to trade among buyers and sellers for shares, bonds, and other financial instruments. The features of stock exchange are organised trading of securities, regulated operations, price transparency, liquidity, and investor protection. It has a very crucial role in the economic system. It facilitates investments while raising capital for businesses as well, thus making sure the trading is fair and transparent. Two major stock exchanges exist in India: one is the Bombay Stock Exchange, and the other is the National Stock Exchange. The stock exchange’s features, types, and functions help investors and businesses make the right decisions.
What is Stock Exchange?
A stock exchange is a formal, organised marketplace where buying and selling are for securities such as stocks, bonds, and derivatives. It serves as an intermediary in bringing buyers together with sellers while ensuring all transactions are performed transparently and efficiently. This provides a market for investors to trade securities for businesses to raise capital and investors to diversify their portfolios.
Major stock exchanges worldwide include the London Stock Exchange (LSE), Bombay Stock Exchange (BSE), and National Stock Exchange (NSE). These exchanges influence global and national economies by determining stock prices and investor confidence.
Features of Stock Exchange
The features of a stock exchange describe how it operates and ensure hassle-free trading between investors and companies. These features make the stock market an integral part of the financial system.
Organised and Regulated Market
A stock exchange is an organised platform that operates strictly under the rules and regulations set by governing bodies. In India, the Securities and Exchange Board of India (SEBI) ensures that the stock exchanges practice fair trading and maintain transparency. These rules protect investors from fraud and create a safe and trustworthy trading environment.
Stock markets follow clear rules and regulations, making all transactions fair and legal. A corporation desiring to offer its shares for trading needs to adhere to the strict financial reporting requirements. Such a system inspires confidence in investors since they learn that all their trades are regulated and legally covered.
Trading of Securities
Stock exchanges are a market where people can buy and sell different types of securities, including equities or shares, bonds, mutual funds, and derivatives. It is an auction place where companies issue equities to raise capital due to increasing business activities; investors buy and sell these securities to make a profit.
The stock market connects companies and investors; businesses get the funding to expand, and the individual gets an opportunity to increase his wealth. This trade enables firms to be successful and keep the economy sound by ensuring capital flows to industries in need.
Price Transparency
Stock exchanges post real-time prices for shares and other securities based on supply and demand. This price transparency helps investors make informed decisions before buying or selling stocks. In India, the Bombay Stock Exchange and National Stock Exchange have ensured accurate and fair pricing using electronic trading.
Stock prices fluctuate every second according to the market condition. This way, investors find it easier to trace their investments. Each investor, across the globe, has an equal opportunity to trade as transparent pricing renders any kind of unfair or manipulative trading in the market, impossible.
Liquidity of Investments
Liquidity is perhaps one of the most basic benefits that one derives by trading through stock exchanges, which provides the investor the comfort of buying and selling any security at any time. The two major exchanges are the LSE and BSE, which experience high-volume trade. This allows easy conversion of the stocks into cash with minimal changes in their prices.
Liquidity makes investments in the stock market more appealing than other investments, such as real estate, which requires time to sell. Investments can be traded out at any time of day, which is why the stock market is the best and simplest strategy to grow wealth.
Safe and Secure Transactions
The stock exchanges are heavily regulated, and protective mechanisms exist to prevent fraud and opportunistic trading. All trades are executed electronically, which ensures security, reliability, and transparency. Stock exchanges have confidence there as they operate under a very strong legal framework.
Advanced technology and monitoring systems by stock exchanges protect traders from suspicious activities. The security provided allows investors to feel that their money is safe and that the market works fairly.
Promotes Economic Growth
Stock exchanges play a huge role in economic growth through Initial Public Offerings, as businesses raise funds to expand operations, create jobs, and develop industries, thereby improving the economy.
A strong stock market is important for developing businesses that innovate and grow, thus creating higher employment rates and better infrastructure development. The stock market bridges firms and investors, ensuring that capital is used to improve industries and the country’s economy.
Encourages Savings and Investment Culture
Stock exchanges make people save and invest their savings rather than keep it idle in bank accounts. Investing in stocks gives higher returns, making the person’s wealth multifold. Promoting easy access to investments and stock markets allows people to become aware of financial discipline and prepare for the future.
When more people invest, they contribute to the economy by providing funds to companies for expansion. This investment culture creates a strong financial system, ensuring better opportunities for businesses and individuals in the long run.
Types of Stock Exchange
Stock exchanges are categorised based on their operations and geographical reach. The two main types of stock exchanges are BSE and NSE.
Bombay Stock Exchange (BSE)
The Bombay Stock Exchange, or BSE, was established in 1875 on Dalal Street in Mumbai and is considered the oldest stock exchange in Asia. It is a very important player in the global market and ranks as the 10th largest stock exchange globally. BSE has played a very important role in the growth of India’s financial sector over the years by providing companies with a platform to raise capital and expand their businesses.
As of April, the market capitalization of BSE is $4.9 trillion, with about 6,000 companies listed publicly. The benchmark index of the BSE is called the Sensex, it acts as an important indicator of market trends. The aforementioned all-time closing high stands at 40,312.07, which was achieved on June 3, 2019, and this indicates that the stock exchange has performed well so far, and investors from around the world have trusted the Indian market.
National Stock Exchange (NSE)
The National Stock Exchange (NSE) was established in 1992 in Mumbai and is recognized for introducing demutualised electronic trading in India. The establishment of the NSE was intended to break the BSE monopoly and establish a more transparent and efficient stock market. NSE changed the face of India’s financial markets with high technology and automated trading systems by providing faster transactions and fairer trading practices.
It is worth noting that as of March 2016, NSE market capitalisation stood at $4.1 trillion, thus ranking as the 12th largest stock exchange globally. While its key stock index is NIFTY 50, widely used by investors worldwide to analyse and track the performance of the Indian capital market, NIFTY 50 constitutes the benchmark for investment decisions by domestic and international investors to understand India’s prevailing economic trends.
| Stock Exchange | Country | Market Index |
| Bombay Stock Exchange (BSE) | India | SENSEX |
| National Stock Exchange (NSE) | India | NIFTY |
| London Stock Exchange (LSE) | UK | FTSE 100 |
| New York Stock Exchange (NYSE) | USA | Dow Jones |
| Tokyo Stock Exchange (TSE) | Japan | Nikkei 225 |
Functions of Stock Exchange
The functions of stock exchange contribute to the growth of businesses, investors, and the economy. Some of the key functions include:
- Capital formation: Stock exchange is helpful in the formation of capital from the issues of shares of the companies. Thus, this facility is to promote business and business growth which fosters economic growth,
- Providing Investment Opportunities: It offers investment opportunities for stock investors. Investors make money by buying and selling shares of stocks. The stock market opens investments, including long-term shares, short-term trading, and mutual funds.
- Maintaining Liquidity: It provides an exchange for easy buying and selling securities, thus maintaining liquidity for investors. Liquidity increases participation and promotes better price stability.
- Protecting Investors: India SEBI protects the investors, and thus, a fair stock market trading practice has no chance of engaging in fraudulent and manipulative practices due to strict monitoring with very high transparency of transactions. These policies make the investor feel more secure.
- Determining Stock Prices: Stock exchanges determine share prices based on market demand and supply. Indices like SENSEX and NIFTY help investors analyse market trends.
- Promoting Economic Stability: A well-functioning stock exchange promotes economic stability through efficient capital flows into businesses, thus reducing economic uncertainty and fostering industrial growth.
Stock Exchange FAQs
1. What are the features of National Stock Exchange?
Features of National Stock Exchange (NSE) is electronic trading, has high liquidity, accessible nationwide, very transparent, and such market indices like NIFTY.
2. What are the characteristics of Bombay Stock Exchange?
Characteristic of Bombay Stock Exchange (BSE) is Asia’s oldest stock exchange, automated trading, and international recognition, and then the benchmark index SENSEX.
3. What is the difference between BSE and NSE?
BSE is the oldest stock exchange in India, whereas NSE is electronic trading and greater trading volumes. Both play vital roles in the Indian financial market.
4. What is the role of a stock exchange in India?
A stock exchange in India helps in raising funds to companies, offering investment opportunities, providing liquidity, and contributing towards economic growth.
5. What are the principal functions of stock exchange?
The roles of a stock exchange are: the formation of capital, liquidity, protection of investors, price determination, and economic stability.
