Importance of Stock Exchange

Stock Exchange is the keystone of our economic development. It is the place where all the government securities, bonds, shares, etc., are transacted. It is also defined as the place for all the buyers and sellers of the shares and securities. Stock exchange also provides the necessary capital for the investment in the business sector.

The stock market is the place where all the transactions take place. Whenever a company wants to get a loan for its further expansion or to start a new business, they have to either take a loan from an institution or issue shares through the stock market. If a company has only one shareholder, it is known as a private company. The people who have invested in the shares of the company gets the share of the profit incurred by it. In the same way, when a person invests in the stock market, the loss of the company can cause the person to lose his money which had been invested in the company. Every company has to go through the stock market before starting its journey.

importance of stock exchange

The stock market is hence vital in the development of an economy. Let us take a look at the various functions played by the stock exchange in our economy.

Why is Stock Exchange Importance?

  • It provides a ready market for the investors. The public can also buy and sell the securities.
  • The funds for the projects of national importance can be raised by the government by selling its securities on the stock exchange.
  • The companies listed on the stock exchange have to submit the necessary documents, including their annual report, change in the management, and also if they plan to start a new venture. With the help of this information, the investors can plan their future investments.
  • The establishment of new ventures has become possible because of the stock exchange. It provides the necessary funds required for the initial investment of a business.
  • The stock market provides the necessary information required to educate the investors in the urban as well as the rural areas of the stock market investments. This helps them to make smart investment decisions.
  • Stock exchange helps to allocate the capital to the companies depending on their performance and, thus, helps in the future growth of the economy.
  • The investors in the stock exchange have to follow a set of rules and regulations. This also helps to create discipline, even in their personal lives.
  • The investors prevent the fluctuation in the stock prices by adjusting the equilibrium of the demand and supply of a particular stock.
  • Stock exchange enables the flow of capital from an unproductive field to a productive field. This helps to improve the trade and commerce industry in the country.
  • The banks and the insurance companies in a country maintain their liquidity by purchasing marketable securities from the stock exchange. These securities can be turned into cash at any time. Hence, they keep securities in their reserve instead of cash.
  • It also helps to determine the prices of the securities through the continuous trading activities in stocks.
  • Compensatory funds are provided in the stock exchange to cover the losses incurred by the investors while speculating the dealings.
  • The stock market is the platform where all the investors are safeguarded equally. This enables them to make accurate judgments on the securities.
  • Stock exchange enables the people to mobilize their savings and invest them for productive purposes.
  • All the new securities are checked before approval. Hence, the stock exchange exercises a firm control over the activities of its members.
  • The investors can be a part of a large-scale business by buying its shares.
  • The stock exchange is the indicator of the current trends in the economy.

For investing in the stock, an investor has to go through a broker. A broker is a person who acts as the middleman between the buyers and the sellers. When a buyer places an order in the stock market, it is the broker who finds a seller of the stock and thus he helps to close the deal.

Also read: Importance of economics

Hence, the stock exchange is the platform which not only helps in boosting the growth of a company but also helps the public to engage in stock trading. A rise in the share prices indicates that a country is in the path of development. In short, the rise and fall of an economy are indicated by a stock exchange.

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