What exactly is a stock exchange?
The literal meaning of exchange is an institution for market investments management. So, stock exchange is a vital portion of the financial market of the world and via this investment in the form of securities, deposits, warrants, certificates etc. are done. It is the domain of direct interaction between the investors and the benefactors where the benefactors receive the funds and the investors sanction their funds as per the relevance. A term called course is the epicentre around which the entire stock exchange runs and this decides the supply and demand scenario. This article deals about the technicalities of a stock exchange and jak funguje burza (how do they work).
The running principle
Stock Exchange is the place where no form of direct interaction between the investors and benefactors takes place. Everything is done through a proper channel of brokers, traders and investment firms. The investors sell their shares as funds or even instruct the firms to complete the transactions on their behalf. The stock market runs in either of the following modes: –
- Parquet exchanges, where trading takes place in the building of exchange and the traders are present on the spot. This concept can be correlated with that of an open market. However, it has become obsolete these days and has hardly any presence.
- Electronic stock exchange, where orders are accepted and given via a string of commands and interconnected systems. This is the modern version and the widely used mode of stock exchange.
How does the stock exchange work?
In a stock exchange, the underlying principle is supply and demand i.e. the securities are earned according to the supply and demand in the market. The pivotal parts of the exchange are: –
- Investors, the ones who sell their shares and securities to fund an individual or organization and frame the entire rules and regulations for the whole transaction process.
- Investment firms, the ones who act as a mediator for the investors and sanction the funds on their behalf and earn some additional capital in return. It ensures a sustainable competitiveness in the market and a fair play amongst all the players.
- Benefactors, who receive the funds and in return payback the favour in form of some shares from their company or as royalty on their patents and inventions.
The course gets built up very quickly and can change completely within some seconds or even stay stagnant for weeks and months.
The frequent versions
The famous versions of a stock exchange are as follows: –
- Ordinary stock exchange in forms of stocks, bonds, long-term securities like share and mortgage bonds. The leading players in stock exchange are New York Stock Exchange (NYSE), London Stock Exchange (LSE) and Prague Stock Exchange.
- Currency Exchange, the forum for trade of all denominations of currencies. The leading player is the Frankfurt am Main.
- Commodity Exchange, where trade in form of raw materials and commodities are done.
Methods of trading
Trading in stock exchange can be done by any of the following methods: –
- Internet applications from the side of brokers
- Telephonic conversations
- One-on-one meeting
- Video conferencing
Irrespective of the method of trading, all the norms of the process must be clearly defined, a limit price be determined from all of the bids and finally any transaction is made with a specified deadline. After all the conditions are met, finally the funds are released and the next chain reaction follows. Ironically, emails are the least preferred method of trading in stock exchange and are hardly opened by the investors.
Advantages of Stock Exchange
Stock Exchange has the following advantages: –
- It is one of the vital parts of the backbone of a national economy as it brings together all of the investors under the same umbrella and ensures smooth functioning of the capital economy to have a healthy and prosperous nation.
- Stock Exchange also determines the value of a currency in terms of the other currencies of the world and decides the increase or depreciation in the valuation.
- It ensures easy investment in the upcoming start-ups and hence creating new jobs for the next generation of youth.
- It allows a price transparency in the market and helps in adapting to the new issues in the stock exchange.
Main stakeholders in a stock exchange
In a stock exchange the major stakeholders are: –
- Capital seeking subjects- The companies that want an additional capital for their investment and can seek for funding from institutions of both Government or public and private types.
- Capital providing subjects- Also known as investors, they are the ones who provide the capital as funds. They can be public sector as well as private investors. Banks are an integral investor in terms of the loans provided by them and the strict rules and regulations set up by them.
- Intermediaries- Also known as investment firms, these are the connecting links between the capital seekers and providers. These are the institutions that advise the investors regarding any investment and are a key player in setting up of any agreement between the two parties.
- Supervisory Institutions- These are the ones who set up the laws and regulations for the stock exchange to be followed by every member of the domain. It involves the Finance Ministries of a majority of the countries.
The final summary
Stock Exchange is a formal and standardized forum for conducting all forms of financial transactions. It eliminates all forms of unnecessary delays, costs and uncertainties and ensures a smooth conduction of the capital transaction. National Stock Exchange Index is a parameter that defines the economic health of a nation and shows how well jak funguje burza (stock exchange works). This article discusses in a crisp manner about all of the technicalities of the stock exchange, their impact on an economy, the key players in the domain and how do the transactions exactly work out in the financial sector.