What is the Stock Exchange?

The stock exchange is an organized marketplace for investors and businesses to trade securities and commodities. The stock exchange plays a crucial role in the economy of a nation, offering businesses accessible capital and investors an opportunity to grow and expand their business. It is a regulated platform for companies to list their shares and investors to trade them. 

Imagine the stock exchange as a supermarket for stocks, where the buyers and sellers can come and trade securities. The Stock Exchange is an essential component of the stock market. 

 

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History of the Stock Exchange

The origin of trade and exchange goes back to ancient times when merchants in Egypt and Mesopotamia used a barter system. The rise in the barter system gave birth to the need to use commodities as currency. Bruges and Antwerp established a prominent trading hub in the 13th century named the “Bourse.” The Amsterdam Stock Exchange, established in 1602, is the world’s first official stock exchange that facilitated the shares of the Dutch East India Company, the first publicly traded company. 

The London Stock Exchange (LSE) grew the stock marketplace by financing the industrial revolution. The Bombay Stock Exchange was established in 1875 and is Asia’s oldest stock exchange. Later on, the 

The National Stock Exchange was founded in 1882 to introduce electronic trading and transparency.

 

How does the Stock Exchange Work? 

The stock exchange is a transparent marketplace offering growth opportunities to everyone. All the financial transactions here ensure liquidity and security. 

Let's have a look at how the stock exchange work:

• Companies wanting to raise money list their shares through an Initial Public Offering (IPO) 
• Stock exchanges provide a platform for buyers and sellers to trade on a regulated platform. 
• Investors do not get directly involved in buying or selling on stock exchanges; they have stockbrokers or trading platforms like Zerodha, Upstockx, Groww, and Angel One. 
• SEBI ensures fair trading on all platforms 
• Trading: Buy or sell stocks to make short-term profits 
• Investments: Buy stocks and hold them for an extended period to earn long-term profit. 

 

What are the Major Stock Exchanges in the World?

• New York Stock Exchange (NYSE): It is the largest stock exchange by market capitalization
• NASDAQ: It is popular for listing tech companies like Apple and Microsoft 
• London Stock Exchange (LSE): It is one of the oldest stock exchange 
• Tokyo Stock Exchange: It is Asia’s largest Stock Exchange
• Bombay Stock Exchange & National Stock Exchange: They are the leading Stock Exchange in India

 

What are the key functions of a Stock Exchange?

The stock exchange is a significant part of the financial market, helping investors and businesses with accessible capital and expansion of wealth. Understanding the key functions of the stock exchange helps in running the business in an efficient way. 

The key functions of a stock exchange are:

• Investors have easy access to the shares.
• The stock exchange provides transparency to investors by showing the performance and value of companies. 
• The companies have access to funds, and investors get returns
• All the functions are regulated 
• Creates employment opportunities 

 

Learn More about Key Topics in Business Studies 

• Amalgamation
• What is Promotion?
• Tender 
• Equity 
• Joint Stock Company

 

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Frequently Asked Questions (FAQs)

What is the key purpose of a Stock exchange?

The stock exchange is a significant part of the financial market, helping investors and businesses with accessible capital and expansion of wealth. Understanding the key functions of the stock exchange helps in running the business in an efficient way. 

What is the process for listing a company on the stock exchange?

The companies have to first list their shares through the Initial Public Offering and meet the regulatory conditions. 

What are the key types of transactions on the Stock Exchange?

There are two key types of stock exchange transactions: 

• Primary transactions for the companies to list new shares through IPO
• Secondary transactions for the investors to buy those shares.