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SPEEDY Railway Book (English)

Important Key Points about Stock Exchange


Stock exchange is an organized market for buying and selling corporate and other securities. In  Stock  exchange,  securities are  purchased  and  sold  out  as  per  certain  well-defined  rules  and regulations.  It  provides  a  advantageous  and  secured  mechanism  or  platform  for  transactions  in
different securities. Stock exchanges are indispensable for the smooth and orderly functioning of corporate sector in a free market economy.  A  stock  exchange  need  not  be  behaved  as  a  place  for speculation or a gambling. It acts as a place for safe and profitable investment.

Characteristics of a Stock Exchange:
  • Securities or corporations, trusts, governments, semi govt. bodies etc. are allowed to be dealt at stock exchanges.
  • It is the place where securities are purchased or sold.
  • Both genuine investors and speculators buy and sell shares.
  • Trading is regulated by rules & regulations prescribed by SEBI and itself.
  • It is an Association of Person whether incorporated or not.

Types of Speculators in Stock market:
  • Jobber – Jobber is a professional speculator who has complete information regarding the particular shares he deals.  He conducts the securities in his own name.  He is the member of the stock exchange and he trades only with the members.
  • Bull (Tejiwala) – Bull is a speculator who is hopeful of price rise in the near future. He makes purchases of securities with the objective of selling them at a higher price in future.
  • Stag – Stag is a speculator who purchases shares to sell them above par value to earn premium. He rapidly buys and sells stocks in quick succession.
  • Lame Duck – When the bear fails to meet his obligations, he is called Lame Luck. Generally a bear agrees to dispose of certain shares on specific date. But at times he fails to deliver due to non availability of shares in the market.
  • Bear (Mundiwala) – Bear is a speculator who expect fall in prices. He sells securities with the intention of buying them at a lower price in future.
Functions of stock exchange:
  • Marketing of new issues: If new issues are listed in exchange, they are readily acceptable to the public.
  • Liquidity & marketability of securities: ensures ready and continuous market where buyers and sellers are continuously available. Securities can be easily converted to cash without time delay in two days.
  • Reflection of business cycles;
  • Central bank can make suitable monetary policies based on the behavior of stock market.
  • Flow of capital to profitable ventures: Profitability and popularity of companies are reflected in stock prices.
  • Safety  of  fund:  Exchanges  are  working  under  strict  rules  &  regulations  which  are  meant  to ensure safety of funds.
  • Promotion of investment through capital formation;
  • Supply of long term funds: Securities traded in stock market are negotiable or transferable in character. One investor is substituted for another. Company is assured of long term availability of funds.

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