A stock exchange is a regulated marketplace where investors can buy and sell shares of publicly listed companies.
It provides a structured platform for companies to raise capital by issuing shares and for investors to trade these shares based on market demand.
How Does a Stock Exchange Function?
1. Company Listings: Businesses list their shares on the exchange to attract investors and raise funds for growth. For example, when a company launches an Initial Public Offering (IPO), it offers shares to the public for the first time. In India, companies list their stocks on exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
2. Buying & Selling: Investors trade stocks through stockbrokers or online trading platforms. The buying and selling of a stock happens at the rate at which the buyer and seller agree to trade upon. This entire process happens electronically through the exchange's order-matching system, ensuring smoorth and transparent transactions.
3. Price Movements: Stock prices change based on supply and demand, company performance, and market trends. For example, if a company announces strong quarterly earnings, more investors may want to buy its shares, pushing the price up. Additionally, negative news can lead to selling, causing the stock price to drop.
4. Regulation & Security: Stock exchanges operate under strict rules to ensure fair and transparent trading. In India, regulatory bodies like the Securities and Exchange Board of India (SEBI) oversee stock exchanges, preventing market manipulation and ensuring investor protection.
The BSE and NSE are the two primary stock exchanges in India, enabling businesses to grow and investors to trade efficiently, making them essential parts of the financial ecosystem.
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