What are stock exchanges all about ?
Stock exchanges are perhaps the most crucial agents and facilitators of entrepreneurial progress among modern service institutions. Since the industrial revolution, business enterprises have grown such that proprietors or even partnership firms can no longer raise the collosal amounts of money required for large entrepreneurial ventures. Such massive capital can only be raised through the participation of a large number of investors; the number running into hundreds, thousands and even millions, depending on thes ize of the business venture.
A stock exchange is a mutual organization which provides “trading” facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
Related posts:
- Major Stock Exchanges in world
- History of Stock exchanges
- History of Indian Stock Exchange
- Trading in BSE/NSE starts at 9 AM from 4th January
- Difference between NSE and BSE
Filed Under: Informative
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