What are the stock exchanges supposed to do???

• Stock exchanges help companies raise capital (Primary Market)
• Enable the shares to be traded among public (secondary market)
• Make sure the companies follow the rules and regulations of the stock market regulators (In India the regulator is SEBI - Securities and Exchanges Board of India)
• It collects all information from the listed companies like change in executive committee, mergers and acquisitions and communicate it public so that the information is spread all over equally.(These information can influence the price of the shares)
• They charge a listing fee for the companies and monitor them for the proper functioning. In case they break the rule. heavy penalty will be imposed on them

Primary Market and Secondary Market

Primary Market

    The Corporates, who wish to raise the capital, go to public through primary market. It is a place where companies will contact public.

    The Companies will issue the share to Public in primary market. This process is called IPO (Initial Public Offering). Public will subscribe for those shares.

    Say for example, if a company issues one lakh shares. If there is huge demand for those shares, the subscription numbers will be more than the number of shares issued. This is called oversubscribed shares. If the subscription is less than the issue then it is undersubscribed. Once the company raises the capital through IPO, the shares will be traded in Secondary market

Secondary Market

    Secondary market is where the shares are traded. People who already hold the shares will sell it for Higher/Lower price, depends on their need and that companies performance. Buyers will buy the shares from the sellers. This trading will be done based on the demand and supply of the shares.

Summary

    Issuing of shares happen only once in the primary market. After that, is will be traded in the secondary market among the buyers and sellers. So if you missed buying those shares in the primary market, it will be available in the secondary market. You have to buy it from the one who already bought the share for a higher lower price based on the demand for the share.

What is a Stock Exchange and Why is it Needed?

We shall understand the need of stock market and what it is in this post. Lets discuss some simple scenarios for better understanding.

1) Let us assume, you, me and one of our friends start a business. We put equal share of capital. After a period of time, you want to exit out of our business and want your share. At that point of time finding another partner immediately and giving away your share is very tough.

(Share is the your share of Ownership)

2) We have got a great idea to expand our business that needs huge capital investment. We are not able to implement the idea due to lack of capital. Raising a huge sum of money in a short period is very tough.

3) A common man has a small investment; he wants to invest a part of that in a large corporation.

A solution for all the above scenarios is the need of Stock Exchange or we can call is Share market.

Share market is a place where the ownership of the company is divided in to multiple shares. Say for example, A company's market capitalisation is $10 Crores and it has One crore outstanding shares, then each share costs $10. You can own one share for $10.

1. If you want to sell the share, you can do it in share market where the buyer meets the seller
2. Corporations can raise a huge capitals by dividing the ownership into multiple shares
3. A common man can invest in large corporation by buying a small number of shares

Share Market is the place which facilitates all the above. It is a place where the corporations raise capital and the shares are traded.

We shall discuss and learn more on stock exchanges coming posts. Happy learning !

About the Author

Hi Everyone! Thanks for reading my blog.

I am Bhupathy, currently working as a Financial Analyst in a Technology Major. I always have a great passion for Finance and Investing. It spiked a lot after my post graduation in finance. Planned to share my knowledge, thoughts and experience with you all through this blog. Stock Exchange is such a broad and interesting area. Here, let us try to learn it in a simple way. Come, explore it!

My Academic Background and Professional Qualification

I have done my MBA in Finance from PSG Institute of Management and Under Graduation in Electronics and communication Engineering from MSEC under Anna University, Chennai

I am a National Stock Exchange Certified Capital Market Professional.