Liquidity and Marketability

Stock exchanges provide a platform for buyers and sellers to trade shares. This means that investors can easily sell their shares when they need to, and buyers can find shares to purchase. The stock exchange ensures that investors can convert their shares into cash whenever they want. This makes it possible for investors to confidently put their money into long-term projects, knowing that they can easily sell their shares if they need to.

Pricing of Securities

Stock exchanges help determine the value of shares by matching buyer and seller demands. The exchange provides real-time data to both parties, which helps set prices. The price of shares is influenced by how much demand there is for them. Companies that are successful and growing are in high demand, which increases their value. This valuation is important for investors, the government, and lenders. Investors can see the value of their investment, lenders can assess a company's creditworthiness, and the government can calculate taxes based on the value of shares.

Safety of Transactions

The stock market is regulated by SEBI (Securities and Exchange Board of India), which ensures that all transactions are safe and secure. All participants, including brokers and companies, must follow strict rules and regulations set by SEBI. Only shares of reputable companies that are listed on the stock exchange can be traded. These companies must meet strict criteria and are closely monitored to ensure they operate fairly and transparently. This framework protects investors and ensures that transactions are conducted in a safe and reliable environment.

Boosts Economic Growth

The stock market offers people a way to invest their money by buying and selling shares. It provides a platform for investors to channel their savings into productive investments, leading to capital formation and economic growth. The stock exchange allows investors to buy and sell shares of various companies, enabling them to redirect their funds to the most promising investments. This process of investing and reinvesting helps to stimulate economic growth by allocating resources to the most productive sectors.

Promotes Equity Culture

Stock exchanges make information about listed companies easily available to the public. This helps educate people about investing in shares, leading to a wider understanding and acceptance of share ownership. By providing access to information, stock exchanges promote a culture of equity investment, encouraging more people to participate in the stock market and benefit from ownership of shares.

Allows for Speculation

Speculation is when investors buy securities intending to make a profit from changes in their price. Stock exchanges allow for speculation but within legal limits. This controlled speculation helps ensure that there is enough buying and selling activity (liquidity) in the market, which supports the supply of securities. By permitting healthy speculation, stock exchanges facilitate a vibrant market where investors can buy and sell securities with confidence.

Efficient Capital Allocation

Successful companies with high profits see their share prices rise, making it easier for them to raise more capital from the stock market. Stock exchanges ensure that investors' money goes to companies that are doing well, as investors are more likely to put their money into profitable businesses. This means that companies that are struggling are less likely to receive investments, allowing the market to allocate capital more efficiently.

Encourages Savings and Investment

The stock market offers appealing investment opportunities, encouraging people to save and invest in company securities rather than putting their money into less productive assets like jewelry. By providing a range of investment options, the stock market promotes a culture of savings and investment, helping individuals grow their wealth over time.