Stock Exchange and How it Works

Stock Exchange: – Marketplace for Shares

Stock market is a place where buying and selling is the main activity. For businesses, which require a huge amount of investment and if the founder doesn’t have the enough funds, then stock market is the best option. Funds can be raised for the capital through stocks. Stock exchanges are the organizations or entities, which mediate between the stockbrokers and the companies. Stock brokers helps traders in buying shares. Shares can be bought only through brokers. Stock exchanges provide trading of both stocks and securities. Bank notes, equities and bonds are called as securities. Stock exchange is the main component in the stock market. Trading can never happen without a stock market. Stock exchanges are also responsible for distributing stocks and for paying the dividends which company offers to its stockholders. Before a security or stock comes into trade, it should be listed in the stock exchange prior. There will be centralized offices for every stock exchange. This is the place where major activities take place. Traditionally, trading used to take place in these offices only. Stockbrokers used to visit the exchanges to buy shares on behalf of the customer. But now, for buying or selling a share, trader should not even visit the brokerage firm. Orders for buying and selling can be placed through Internet banking. With a few clicks, one can easily buy or sell shares.

Phases of stock trading:

There are two phases of trading in stock exchanges. They are primary market and secondary market. Initial issue of stocks and bonds happens in the primary market. This includes deciding the face value, planning the number of share, etc. Other activities, which follow here after takes, place in the secondary market. This includes selling the shares and allocating dividends.


The history of stock exchange falls back to 11th century. At this time, a group of people practiced trading by acting as mediator for banks. They targeted agricultural community and mediate between these communities and the bank. They can be said as the first brokers. In 13th century Venetian bankers traded with government bonds. Later during 16th century, stock market came into picture. The concept of stock and share arouse. Dutch East India Company is the first to introduce shares. Shares were issued for Amsterdam stock exchange. Later, New York stock and exchange board got established on 1817 with a group of brokers and this made as a beginning for the current stock market giant New York stock exchange.

Roles of stock exchange:

Mediating between the company and the trader is the main role of stock exchange. Stock exchanges have a direct impact on global economy. Here are some of the roles, which stock exchanges perform:

1.They provide opportunity for companies to raise funds for accelerating their business.

2.The product line of the company can be increased. By rising funds, the company can manufacture many new products and thus there will be an increase in the economy of the country too.

3.Stock exchange monitors the issue of profit between the company and the shareholder.