How the Stock Exchange Functions

A country’s stock market plays a very pivotal and important role in its economy. A stock market, also known as an equity market, is a public entity established for the purpose of facilitating the business of buying and selling trading securities, equities, derivatives and other financial instruments.

Stock markets contribute to the growth and development of the world’s economies. Needless to say, the world’s stock markets, according to are valued at a combined $36.6 trillion – an amount larger than most developing economies.   

Some of the most popular and largest stock markets include the New York Stock Exchange, the London Stock Exchange, the JSE Limited, the Paris Bourse, the BMV and the Shanghai Stock Exchange.

Basically, the stock exchange functions as a marketplace where securities are traded on a just, fair and equitable manner. It can be said that a stock exchange is established primarily for the purpose of assisting, regulating and controlling the business of buying and selling financial instruments.

Normally, a professional stock broker buys and sells securities on behalf of an investor. Stock brokers may work as a freelancer or may be employed by a professional brokerage firm. Besides the actual buying and selling of securities, a stock broker may also perform advisory dealing and discretionary dealing services.

Other functions of the stock market includes providing a market wherein investors with excess capital can invest therefore, enhancing profitability. Similarly, a stock market also establishes rules and regulations that serve as the framework of fair and equitable trading and business.

The stock market also encourages transparency among its members. Being listed on the stock market is a privilege. For that reason, publicly-listed companies become more careful, more conservative and more truthful when it comes to carrying out their respective businesses.

There is no discrimination when it comes to stock market transactions. Companies listed in a stock market range from small and medium scale enterprises to large multinational corporations. Moreover, stock markets encourage fair trade.

In a way, stock markets level the playing field between the small and medium scale enterprises and their large multinational counterparts. Stock markets provide opportunities and enhance the visibility and the consumer awareness geared toward its member companies.

While stock markets are notorious for its inconsistent ups and downs, monumental crashes and negative down trends, investing in a stock market is generally beneficial and profitable on a long-term basis.