The role played by stock exchanges

stocksEvery country has a stock exchange. The indexes on that exchange are monitored closely by everyone in the country and everyone outside the country. It acts as a barometer to measure the economic health of the nation. If you are a student preparing a research project on stock exchanges, make sure to do a proper statistical analysis as it will form the basis of your work. You can even consult expert statisticians in case you feel unsure. This is just one of the roles played by a stock exchange, but there are many more.

Brings buyers and sellers together

Where would buyers be if there were no sellers, and where sellers would be if there were no buyers? The answer is that there would be no trade. This is where the stock exchange comes in. It is the platform where buyers and sellers come together and trade stocks and other related products. Without the stock exchange, most of the stock trading can only be done by private parties with each other in an unregulated way. The stock exchange is the platform that throws trading open to the general public.

The importance of price and valuations

One of the important roles played by the stock exchanges is to give the correct valuations of the securities. It is essential that the securities are priced based on the demand and supply of the shares. If private parties had their way with no regulators then the price of the shares would either be unfairly inflated or they would be unfairly depreciated. This would be unfair on those who are just simple investors and are not in the know of how the pricing works. The role of the stock exchange is to make sure that the prices of all the shares is reached based on how many people want to buy them and how many want to sell them.

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Opens up stock investments to the secondary market

There are many investors who are not able to buy the shares when they are sold for the first time during the initial public offering. If the demand is too high then the shares are often sold on a first-come first-serve basis or on some other arbitrary criteria. But that does not mean that investors should be excluded from buying the shares altogether. The stock market provides them the opportunity to invest again in the shares by acting as a secondary market, and also gives existing holders of the shares the chance to sell the shares and make a profit.

Gives companies an additional source of funds

Companies are able to tap into an additional source of funds for their development needs. It is one of the reasons that many firms get themselves listed. There is only so many loans that they can get from banks, and there is only so much capital that the owners can bring in. But if they get themselves listed then they can tap into the funds that retail investors are prepared to infuse into good companies. They can also tap into the funds pumped in by foreign investors and institutional investors. Once a company is listed on a stock exchange, it is generally accepted that it is a reputable and safe company.