Stock exchange - what is it? Functions and participants of the stock exchange

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

In most modern countries with a market economy, stock exchanges operate. The activities of the relevant financial institutions involve the performance of a large number of functions that are significant for the national economy. What are they? What are the basic principles of trading on the respective platforms?

What is a stock exchange?

A stock exchange is, in accordance with a common definition, a specialized organization that organizes trading in various securities. It guarantees the legal legitimacy of transactions, in some cases - the confidentiality of traders and other market players, provides payments in favor of authorized persons of various compensations, provides trading participants with various tools for buying and selling securities.

The stock exchange is an essential attribute of a modern market economy. It allows companies to raise funds from investors by placing shares in free circulation, and thus increase their own capitalization.

The history of stock exchanges

It will be useful to learn howstock markets appeared. The history of the emergence of the relevant financial institutions begins, according to modern researchers, from the 16th century. Then the first commodity exchanges appeared in the largest European trading cities. In 1531 - in Antwerp, in 1549 - in Toulouse, in 1556 - in London. However, the corresponding format of financial legal relations did not immediately become popular, and these exchanges closed for various reasons.

At the same time, already in 1611, a new stock exchange was opened in Amsterdam, which is still functioning. It initially carried out trades in goods, but over time, securities became the subject of transactions on the exchange. The first, in fact, the stock exchange was the corresponding organization in London, founded in 1773. In 1792, a similar structure was established in New York.

History of stock exchanges in Russia

It can be noted that the prototypes of stock exchanges in Russia appeared in the time of Peter I. In 1789, Catherine II issued a decree, which approved the plan for the construction of Gostiny Dvor in Moscow, under which it was supposed to organize the functioning of the exchange. But in fact, this financial institution began to work only after the Patriotic War of 1812. By that time, as historians note, the Odessa Stock Exchange, in particular, had already opened in 1796. In the 19th century, the corresponding format of financial legal relations in Russia was actively developed.

By 1917, there were about 115 stock exchanges in the Russian Empire. However, the revolution and subsequent events complicated the prospectsdevelopment of the respective segment. The exchanges functioned during the NEP period, however, in 1930 their activities were terminated. The restoration of the institution of stock exchanges in Russia took place only after the collapse of the USSR. Now in Russia there are several largest stock exchanges. Among the most famous - RTS, MICEX. Their establishment is due to the fact that the stock exchange is, as we noted above, an integral attribute of a market economy. Since the national economy of the Russian Federation began to rebuild from the socialist model to the capitalist one, the establishment of appropriate financial institutions was carried out.

In more detail, what is the significance of stock exchanges for the economy of the state, we can consider in terms of the functions they perform.

Functions of stock exchanges in the national economy

Modern experts highlight the following list.

First, the function of the stock exchange is the accumulation of significant amounts of capital in the national economy. This option largely affects the investment attractiveness of enterprises operating in the state. At the same time, it should be noted that capitalization on stock exchanges does not always correlate with GDP dynamics. Participants in the stock exchange are traders and entrepreneurs who participate in trading, primarily in an effort to earn something for themselves. At the same time, their acquisition of certain financial resources may become a factor in their reinvestment in business, and this, in turn, may have a positive impact on the state's GDP.

Secondly, a stock exchange is an exchange whereforeign investors play a significant role. Thus, the relevant financial institutions are of great importance in terms of the state's international economic activities. RZB and stock exchange statistics are, in some cases, significant economic indicators for foreign partners.

Thirdly, stock exchanges are, as a rule, very large organizations that form entire professional communities of traders. Members of the stock exchange are not only companies trading in shares, they can, in principle, be ordinary citizens who have access to the necessary financial instrument for the purchase and sale of securities. Thus, the considered financial institutions are also a socializing resource, an environment for self-realization of people, a tool for ensuring employment of the population.

Stock exchange structure

Now we know that the stock exchange is a significant financial institution for the national economy. Now let's explore what is the specifics of its structure, and what are the main processes carried out during the auction. A stock exchange is a place where securities are bought and sold - most often, free shares issued by a private or public company.

Quotes and Indices

Based on how things are in the market in general or in a particular business in particular, quotes of the relevant stocks are compiled. Together they make up the stock exchange index. This is, in fact, a total indicator of the value of securitiessecurities traded on the relevant trading floor. This index is formed, as a rule, by the largest issuers of shares, and therefore, on its basis, an investor can assess how things are going in a particular sector of the national economy of the country or the entire economy as a whole.

What tasks do the organizers of the exchange solve?

As we noted above, stock indices do not always correlate with GDP, but they can provide guidance on the growth prospects of the corresponding macroeconomic indicator. Therefore, compiling a quotation list on the stock exchange is not an easy task for financiers who, on the one hand, must determine the list of the largest companies based on objective criteria, and on the other hand, ensure the representativeness of their presence in the exchange index. At the same time, trading operations specialists can focus on both international standards and norms, and those that reflect the national specifics of securities transactions.

Compiling a quotation list on the stock exchange is not the only significant task of the financiers who organize the corresponding auctions. They must also ensure the full legitimacy of transactions, the correctness of the placement of shares, the input and output of funds in terms of international and national legislation in the field of finance. Thus, the organization of open trading in securities involves the participation of the following main players in them: issuers of shares, traders, financiers who make up quotation lists, as well as ensure the legitimacy of transactionsfor the purchase and sale of securities.

Principles of trading on the stock exchange

Let's now consider the principles on which trading is carried out on the respective sites. The stock exchange is a market, albeit somewhat localized. That is, pricing for those goods that are offered on it - in this case, the securities of companies - is carried out based on the ratio of supply and demand for the relevant assets. There is no administrative regulation of prices on exchanges. The company brings its shares to the market, intending to attract investors, first of all, by its own achievements in building a business model.

A stock exchange is an organized market that operates according to certain rules and regulations. In order to enter it, the company issuing shares must meet a number of criteria, as well as other firms that place securities on the relevant trading floors. Similarly, traders must adhere to the established norms.

Openness as a key attribute of trading

However, the relevant financial institutions tend to try to be as open to investors as possible. In particular - for those representing foreign countries. The International Stock Exchange is one of the most effective financial instruments for attracting capital to the state. Therefore, its founders try not to overbureaucratize access to trading for foreign citizens.

Due to which quotes are growing onexchanges?

The next aspect that will be useful to consider is what ensures the growth of stock prices of a company listed on the stock exchange. We noted above that the considered financial organizations are completely market structures, practically excluding the influence of the administrative factor on the pricing mechanisms. The stock exchange index is an indicator that reflects the investor's interest in placing funds in the shares of certain companies, and not in any others. But how does a trader determine if an investment is safe? And at what point does he decide to sell the acquired shares?

A lot of factors come into play here.

Firstly, published data on the state of affairs in the business of the company issuing shares are taken into account. This may be financial statements, the results of audits, analytical articles relating to the evaluation of the effectiveness of the company's business model.

Secondly, a very significant benchmark for a trader is macroeconomic indicators. If an investor sees that the state of affairs in the national economy of the country in which the issuing company operates is far from ideal, he may decide to sell the shares of all or most of the firms of this state.

Thirdly, a significant aspect of a trader's decision-making on the acquisition or sale of securities is the political situation in a particular region. The sudden change of power in states or the appearance of tension in relations with neighbors is a factor thatthe investor may revise his assessment of the prospects for investing in shares of firms operating in a particular country.

What is the motivation of traders and issuers on the exchange?

Let's study another aspect of the work of stock exchanges - motivational. In fact, what motivates issuing companies and traders seeking to participate in securities trading? The activity of the stock exchange is, first of all, the organization of legitimate interaction between an investor - a person who seeks to maintain and increase his capital, and a commercial enterprise, which, in turn, wants to increase its own turnover, master new industries, ensure recognition of its brand on the national and foreign markets. Both parties, of course, are primarily interested in making a profit, and this is their main motivation.

Are stock exchanges legal?

Among traders, there is often an opinion that the stock exchange is a scam, and transactions for the purchase and sale of securities are extremely rarely profitable. However, as we noted above, the organizers of securities trading, first of all, ensure just the same full legitimacy of the relevant transactions, give the relevant mechanisms as much transparency as possible. Therefore, it is not necessary to talk about deception here, but only a competent trader is often able to verify this. Which, investing in securities, is aware that in the event of a decrease in quotations, losses are possible. As well as the appearance of a tangibleprofit if the purchased shares of the company increase in price.