What is the Stock Exchange and its functions?

The Stock Market is an important constituent of the capital markets. It is a neighborhood of the financial market where corporate securities are bought and sold. It is an organized Capital market where second-hand securities are bought and sold for investment and speculation purposes. Only listed Securities are often traded on a stock exchange .

What is the Stock Exchange?

The stock exchange may be a place where various sorts of securities are purchased and sold. The term securities include equity shares, preferred stock , debentures, government securities, and bonds, etc. including units of Mutual Funds. Stock exchanges act as intermediaries between investors and borrowers. To provide safety and stability to the investors, Stock exchanges in India are regulated by SEBI. 

Stock Exchange

Functions of Stock Exchange

  • Mobilization of Savings
  • Capital formation
  • Pricing of Securities
  • Economic Barometer
  • Protecting Interest of Investors
  • Liquidity
  • Better Allocation of Capital
  • Contributes to Economic Growth
  • Providing Scope for Speculation
  • Promotes the habit of Saving and Investment

Major Stock Exchanges in India

Bombay Stock Exchange (BSE) :


Bombay Stock Exchange was founded in 1875 is the oldest stock exchange not only in India but also in Asia. It was the primary exchange to receive recognition from the Indian Government. BSE Online Trading (BOLT) facilitates online screen-based trading in securities. BSE reaches over 400 cities across India.

The BSE’s overall performance is measured by the Sensex, a benchmark index of 30 of the BSE’s largest and most actively traded stocks covering 12 sectors. Debuting in 1986, the Sensex is India’s oldest stock market index . Also called the “BSE 30,” the index broadly represents the composition of India’s entire market. 

National Stock Exchange (NSE) :


NSE commenced its operations in the Wholesale Debt Market (WDM) in April 1994 and in Capital Market (Equities) segment in June 1994. It formed the primary clearing corporation (NSCCL), which carries out clearing and settlement of trades executed in inequities and Derivatives segments.

Since then it’s evolved to be the very best volume generating Exchange in India. It has got the widest network of terminals across India. They also provide online trading facilities over the web .

National Stock Exchange has a total market capitalization of more than US$2.27 trillion, making it the world’s 11th-largest stock exchange as of April 2018. 

Important terms related to Stock Market

Index :

An index is that the benchmark used for measuring the performance of a fund manager and may be a comprehensive measure of market trends, intended for investors who are concerned with general stock market price movements. An index comprises stocks that have large liquidity and market capitalization . Each stock is given a weightage within the Index like its market capitalization 

  • BSE Index – Sensex
  • NSE Index – S&P CNX Nifty 50

Sensex :

Sensex has become the barometer of the Indian Stock Market. It is comprised of 30, well-established, and financially sound companies. Sensex first compiled in 1986, was calculated on a “Market Capitalization-Weighted Method”. The base year of Sensex 1978-79. Right now Sensex is calculated using the “Free-float Market Capitalization” methodology. 

S&P CNX Nifty :

Nifty is a well-diversified 50 stock index accounting for 22 sectors of the economy. This Index was launched in 1996. It is the primary index constructed by the National stock market . Its construction is slightly different from that of Sensex. Sensex measures the floating capitalization of its constituents, however, Nifty may be a step behind, it takes the complete capitalization of its 50 constituents. 

SEBI (Securities and Exchange Board of India) :

The Securities and Exchange Board of India was established on April 12, 1992. It is an interim administrative body to function under the overall administrative control of the Ministry of the Central Government. Investors can write to SEBI all their complaints. Online complaint forms are available on the web site of SEBI. 

Options to Make Money in Stock Markets :

We can make money in Stock Market in the following ways –

  1. Investment (Delivery Based Trade)
  2. Speculation (Intraday and Derivatives Positions)
  3. Hedging and Arbitrage
  4. Margin Funding
  5. Dividend Income

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