What is Stock Exchange

What Is Stock Exchange And How Does It Work?

When you start investing or trading in stocks and securities you will realize that all you have to do is through a stock exchange. Basically, a stock exchange does not own any shares but acts as a market where stock buyers and stock sellers connect with each other. Stock can be traded freely in these stock exchanges while all you need is an account an investment. Here is FinanceShed with a complete guide on What is Stock Exchange.

The History

What is Stock Exchange

Source: niamc.com

The first-ever stock exchange’s history dates back to the year 1531. The same was opened in Belgium in Antwerp and all the brokers and moneylenders would meet there to deal with the business, government and even individual debt issues. Back then, there were no real stocks that can be traded but these exchanges traded mostly in promissory notes and bonds. These were also used to generate income and gains as it is done out of stocks these days but there was no official share that changed hands.

Also Read: High Yielding Best Dividend Stocks To Buy In June 2019

What is the Stock Exchange?

What is Stock Exchange

Source: kbc.co.ke

A stock exchange is a place that hosts a market where stocks, bonds, options, futures, and commodities are traded. Here buyers and sellers trade during specific hours on business days. The company whose shares are traded by the buyers and sellers it is referred to as “listed.”

Stocks are available to trade freely in Stock Exchange after the company lists its name in the stock exchange and come up with Initial Public Offering where the company sells shares to an initial set of public shareholders. Once the shares float freely into the market these shares can be sold and purchased on an exchange by the investors in the secondary market. Here, the primary function of the exchange is to provide liquidity and gives sellers a platform to trade in the stocks.

In other words, it is an organized market where securities are bought and sold at prices governed by the forces of demand and supply. The stock exchanges serve the purpose as under:

  • As a primary market where corporates and other incorporated bodies can raise capital by having an initial public offering and by penetrating the market by acquiring the capital of their new ventures.
  • As a secondary market where investors can sell their securities to other investors for cash in order to maintain the liquidity system.

If these stock exchanges would not be there, the companies won’t be able to sell their shares on a stock exchange and would have to endorse the shares to someone in exchange for payment in a physical or paper form. Not technically, but this is also a way to have a secondary market. In stock exchange trades are conducted over telephone or online.

What is Stock Exchange

Source: benzinga.com

Here the buyers enter competitive bids and sellers enter competitive orders through a trading day. Some of the major stock exchanges include The New York Stock Exchange, the National Association of Securities Dealers Automated Quotation (NASDAQ), the National Stock Exchange of India and many more.

If it is to be explained in simple terms, the stock exchange is a platform where the companies have the chance to generate capital when they require funds for caring on business or to go for a new venture whereas, on the other hand, it is one of the best options for the investors to generate profit out of the ideal fund available to them by investing it in stock market.