Stock exchanges are platforms where buyers and sellers meet to trade stocks, bonds, and other securities.
They are a key part of the economy as they allow for the exchange of financial assets.
For a layman, how these exchanges work can appear overwhelming.
But with some basic understanding of their workings, one can understand the fundamentals of stock trading and its contribution to the financial market.
The role of stock exchanges
Defining stock exchanges
Stock exchanges are regulated marketplaces for buying and selling securities.
They provide transparency in transactions by offering real-time data on prices and trades.
By ensuring transparency, stock exchanges enable investors to make informed decisions.
Further, stock exchanges also enforce rules to protect investors from fraud and ensure fair trading practices.
Importance of indices
Significance
Indices such as S&P 500 or Nifty 50 show how a section of the stock market is performing.
They give an idea of the market’s movement by checking the prices of handpicked stocks over time.
Investors take indices as a reference point to see how their portfolios are performing compared to broader market trends.
Regulatory frameworks
Market regulators
Stock exchanges are regulated by strict rules and regulations set by government bodies like the US Securities Exchange Commission (SEC) and the Securities and Exchange Board of India (SEBI).
These bodies enforce rules to ensure the markets function efficiently, without being manipulated or unfair practices that could hurt investor confidence.