Functions of Stock Exchange

Vinish Parikh July 10, 2013

Stock exchange or stock market play pivotal role in shaping up the economy of a country and therefore they have to be responsible in performing their duties. Given below are the various functions of stock exchange –

  1. Marketplace – The first and foremost function of stock exchange is to have the marketplace where both buyers and sellers can execute various transactions of their choice with ease without any hurdle, which results in demand and supply forces acting against each other to decide the correct price or valuation of a security.
  2. Economic development – Stock exchange helps in promoting the economic development of the economy by stimulating the industrial development through encouragement of investment by the people in companies which needs funds for their expansion.
  3. Benefit of investor – Every individual cannot do business, but if one want to take part in the success of the company he or she can invest into the shares of the company through stock exchange so that he or she can become a part owner of the company and enjoy the rewards due to the success of the company.
  4. Transparency and safety – Stock exchange needs to provide an environment where all dealing are done in a transparent manner and neither the buyer or seller should fell insecure because of lack of safety measures and fear of getting cheated by the company and stock market intermediates like brokers, sub brokers etc…
  5. Promoting foreign investment – In the age of globalization every country is dependent on each other and stock exchanges are the best way to attract foreign investment into the country which in turn helps the companies in raising funds at cheaper rates and also it promotes FDI into the country.
  6. Stop too much speculation – As we all know that stock markets are vulnerable to speculation and healthy speculation to an extent is good but stock exchanges should always keep an eye on speculation because too much of it can result in genuine investors getting out of the market leaving to the speculators which we all know is not a good sign for any stock exchange.