A stock exchange or bourse is an exchange where stock

brokers and traders can buy and/or sell stocks (also called
shares), bonds, and other securities. Stock exchanges may also
provide facilities for issue and redemption of securities and other
financial instruments, and capital events including the payment of
income and dividends. Securities traded on a stock exchange include
stock issued by listed companies, unit trusts, derivatives, pooled
investment products and bonds. Stock exchanges often function as
"continuous auction" markets, with buyers and sellers
consummating transactions at a central location, such as the floor of
the exchange.[2]
To be able to trade a security on a certain stock exchange, it must
be listed there. Usually, there is a central location at least for record
keeping, but trade is increasingly less linked to such a physical
place, as modern markets use electronic networks, which gives them
advantages of increased speed and reduced cost of transactions.
Trade on an exchange is restricted to brokers who are members of
the exchange. In recent years, various other trading venues, such as
electronic communication networks, alternative trading systems and
"dark pools" have taken much of the trading activity away from
traditional stock exchanges.[3]
The initial public offering of stocks and bonds to investors is by
definition done in the primary market and subsequent trading is done
in the secondary market. A stock exchange is often the most important
component of a stock market. Supply and demand in stock markets
are driven by various factors that, as in all free markets, affect the
price of stocks (see stock valuation).
There is usually no obligation for stock to be issued via the stock
exchange itself, nor must stock be subsequently traded on the
exchange. Such trading may be off exchange or over-the-counter. This
is the usual way that derivatives and bonds are traded. Increasingly,
stock exchanges are part of a global securities market.
(1) Providing Liquidity and Marketability to Existing Securities:
Stock exchange is a market place where previously issued securities
are traded. Various types of securities are traded here on regular
basis.
Whenever required, an investor can invest his money through this
market into securities and can reconvert this investment into cash.
Availability of ready market for sale and purchase of securities
increases their marketability and enhances liquidity.
(2) Pricing of Securities:
A stock exchange provides platform to deal in securities. The forces
of demand and supply work freely in the stock exchange. In this
way, prices of securities are determined.
ADVERTISEMENTS:
(3) Safety of Transactions:
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Stock exchanges are organised markets. They fully protect the

interest of investors. Each stock exchange has its own laws and byelaws. Each member of stock exchange has to follow them and if any
member is found violating them, his membership is cancelled.
For instance, if any broker working in stock exchange charges more
commission than stipulated from any investor or misleads him in any
other way, then the management committee of the stock exchange
can fine the broker and even his membership can be cancelled.
(4) Contributes to Economic Growth:
ADVERTISEMENTS:
A stock exchange provides liquidity to securities. This gives the
investor a double benefit-first, the benefit of the change in the
market price of securities can be taken advantage of, and secondly,
in case of need for money they can be sold at the existing market
price at any time.
These advantages provided by the share market encourage the
people to invest their money in securities. In this way, peoples
money gets invested in industries and economic development
becomes possible.
(5) Spreading Equity Cult:
Share market collects every type of information (more particularly
about their economic condition) in respect of the listed companies.
Generally, this information is published or in case of need anybody
can get it from the stock exchange free of any cost.
ADVERTISEMENTS:
In this way, the stock exchange guides the investors by providing
various types of information. Consequently, the number of
shareholders in companies is increasing continuously. Thus, the
stock exchanges are playing a vital role in ensuring wider share
ownership.
(6) Providing Scope for Speculation:
When securities are purchased with a view to getting profit as a
result of change in their market price, it is called speculation. It is
allowed or permitted under the provisions of the relevant Act. It is
accepted that in order to provide liquidity to securities, some scope
for speculation must be allowed. The share market provides this
facility.
Need and Importance
The stock exchange is a necessary aspect of commerce world-wide.
Without a stock exchange in which people could quickly and easily
trade assets, the global economy would quickly grind to a halt.
Although a stock exchange is not in itself a source of new equity
capitalof risk funds essential to developing new industries it is
true that the flow of new capital soon would slow to a trickle without
it. If there were no stock exchangeno market place where people
could sell their securities for cashcapital would soon become
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sluggish and the financing of new ventures, no matter how

promising, would be heavily curtailed.
The investment-banking business has built up a highly efficient
mechanism for the initial sale of securities issued by a new
enterprise. The investment banker buys an entire issue of securities
from the new company and it is his job to sell the securities to the
investing public, both institutional and individual investors.
As a general rule, after the investment banker has made this
primary distribution of securities, the number of investors in the
company is still comparatively small. These are the investors willing
to put their money into new enterprises, which have not yet
developed a widespread public appeal. As new securities become
seasoned, however, they may qualify for listing. That step makes
the securities more attractive to more people and enables the
holders, when and if they wish, to liquidate their investment in a
market place and to put the proceeds into another enterprise.
How important are the 1,500 companies with stock listed on the
NYSE? Some measure of their importance may be got from these
figures: these 1,500 companies earn about half of all the net profits
after taxes reported by all U. S. companies; they pay their
stockholders half of all the dividends disbursed; about 90 percent of
these companies paid cash dividends in the last 12 months and
almost 300 have paid dividends every single quarter for 20 years or
more. Corporations listed on the Exchange provide jobs for more
than 11 million workers. These companies produce practically all the
automobiles and trucks made in this country, ship about seven
eights of all the finished steel, produce three quarters of all the
electric power, refine 90 percent of all the oil produced, and handle
95 percent of our railroad traffic and air passenger travel.
The list of Stock Exchange securities has grown with the country. Up
to 1869 listing on the Exchange was a highly informal action. In that
year the Stock Exchange laid down its first requirement for listing
that it be notified of all stock issued and valid for trading. In the
following years the Exchange added more requirements, including
frequent earnings reports, full and prompt disclosure of changes in
property or business, and maintenance of securities transfer offices.
Data Presentation and Analysis - The Stock Exchange:
John invests in shares of three companies listed on the stock exchange:
Citigroup, Caterpillar and Coca-Cola.
On the morning of January 1, 2008, the status of his investment was as
follows (note: the figures are not not actual results):
The Stock
Sum of the
Exchange-listed No. of Shares Share Price
Investment
Company
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(1)
Citigroup
Caterpillar
Coca-Cola
Total

(2)
12
6
2
20

(3)
$6
$10
$30

(4) = (2) X (3)

$72
$60
$60
$192

The investment totals $192.

At the end of the trading day, the price of all shares that John held rose
sharply, as follows:
Name of Company

Increase in %

Citigroup
Caterpillar
Coca-Cola

10%
15%
8%

Increase in $ (profit
per share)
$0.60
$1.50
$2.40

It is clear that John earned a good profit on that day, and our first question is
how many USDs on average did John earn per share that he owned?
There are three different pieces of data: $0.60, $1.50, and $2.40.
Another characteristic of each group is that all shares in each group have
been issued by the same company, as follows:
All of the shares that rose by$1.50 are Caterpillar shares.
All of the shares that rose by $0.60 are Citigroup shares.
All of the shares that rose by $2.40 are Coca-Cola shares.
We will present all of the data in a table:
Profit
Weight of
Number of
Names of per
the Group Contributio
Numberin
Individuals
the
share
(the
n of the
g of the
in Each
Companie in $
relative Group to the
Group
Group (the
s
(the
frequency Average
frequency)
value)
)
(1)
(2)
(3)
(4)
(5)
(6) = (3) x (5)
Group 1 Citigroup $0.60 12
60%
$0.36
Group 2 Caterpillar $1.50 6
30%
$ 0.45
Group 3 Coca-Cola $2.40 2
10%
$0.24
$1.05
average
Total
20
100%
profit per
share
The calculation shows (the bottom row of Column no. 6) that the average profit
per share was $1.05.
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Calculating the Average Profit on Each USD Invested

Another obvious question relating to this example is how much profit (in terms
of percentages) on average were earned by John on each USD of the $192
that he held on the stock exchange on January 1, 2008.
Before we perform this calculation, we will clarify our question. If the result is
10%, for example, this would mean that John added 10% to the value of his
original investment, i.e., $19.20. In other words, $0.10 (10%) was added for
each USD invested.
We will format the data in a table:
Number of Weight of
Names of
Items in the Group Contribution
Numbering
Profit in
the
Each
(the
of the Group
of the
% (the
Companie
Group
relative
(Percentages
Group
value)
s
(the
frequency )
frequency) )
(1)
(2)
(3)
(4) (1)
(5)
(6) = (3) x (5)
Group 1 Citigroup 10%
$72
37.50%
3.75%
Group 2 Caterpillar 15%
$60
31.25%
4.69%
Group 3 Coca-Cola 8%
$60
31.25%
2.50%
10.94%
Total
$192
100%
average (2)
John earned an average profit of 10.94% on his investment.
Activity
Try to locate the average income and the median income of families in the
USA on the US Census Bureau website. Which of these is larger?
If your answer is the average income, then you were correct!
The distribution of incomes in the USand most other countries indicates that
relatively few families have very high incomes, while many families have low
incomes. Thus, the high-income families have a greater effect on the average
income than in the median income.
In order to enable a better understanding of this subject, we will use an
extreme example. We will assume that there are 20 people in a restaurant,
each of whom earns an income of $30,000 annually. Clearly, both the median
income and the average income will be $30,000 per year. Let us now assume
that another person comes into the restaurant. This individual is very rich, with
an income which is 100 times the income of those sitting in the restaurant. In
this case, the median income will not change, but the average income will
increase from $30,000 to approximately $170,000.
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Conclusion
You can make a lot of money investing in stocks or trading in
the stock market, but it is not something for the new investors. Care
must be taken when it comes to stock investments. The investor
must have a solid understanding of stocks and how they trade in the
market or risk losing money in a volatile type of investment.
Lets review what weve learned in this tutorial:
Having stock in a company means you are an owner. How many
shares of stock you have determines the extent of that ownership.
As part owner, you receive dividends and have voting rights.
A stock represents equity, while a bonds is a debt. Bonds are lowrisk investment vehicles with guaranteed returns, while stocks
involves more risk. This is why stocks have a higher rate of return
compared to bonds.
In investing, the riskier the investment the bigger the chance of
making more money. Investing in stocks can make you lots of money
if you invest in the right company. However, you can lose all of it
too.
There are two main types of stocks: common and preferred. Stocks
can be further classified into different classes depending on the
company.
The stock market is a place where people go to trade stocks. Two of
the most important stock exchanges in the United States are the
NYSE and Nasdaq.
Purchase of stocks are commonly done through a brokerage. You can
also get a dividend reinvestment plan (DRIP).
Stocks are volatile. Prices change according to supply and demand.
Many people have different opinions on why stock prices move the
way they do. One of the most important factors that influence prices
is earnings.
Learning how to read stock tables or a stock quote is a must if you
are planning to be a serious investor in stocks. It is not hard to read
a stock quote once you know what the different terms and symbols
stand for.
Always remember the old stock market saying: Bulls make money,
bears make money, but pigs get slaughtered!. This will perhaps
save you many times from losing on your investment.
Opinion
There is no shortage of ways to invest money and supposed experts,
who will help you invest. But knowing what you are doing and
understanding the risks is of the utmost importance. Take the time
to find out as much as you can and use the useful advice from this
article to help you do it the right way. Do not blindly follow the
recommendations of your investment broker without doing some
due diligence of your own. Ensure that the investment is registered
6

with the SEC and find some background information on the way that
the investment has performed in the past. There have been
instances of fraud whereby the information presented by the broker
was fabricated. Pay less attention to the various market voices that
are trying to bombard you with data on price points. This will allow
you to gain more information on the performance of the companies
you currently invest in or plan to invest in, giving you the chance to
make smarter decisions. Keep in mind that the value of a stock
involves much more than simply its price. It is definitely possible for
an expensive stock to be undervalued, and for a stock that is worth
pennies to be severely overvalued. When deciding whether or not to
invest in a particular stock, there are several other factors to
consider that are more important. The price of a stock should be
only one small part of the decision. Information is vital to having
good management and decision-making skills for your stock
portfolio.
Reference
http://documents.tips/documents/stock-exchange-suggestion-thatwill-work-for-you.html#
http://www.yourarticlelibrary.com/stock-exchange/6-importantfunctions-of-stock-exchange/1062/
http://studypoints.blogspot.in/2011/03/functions-importance-or-roleof-stock_7383.html
http://www.globalfinanceschool.com/book/statistics/datapresentation-and-analysis-stock-exchange