What are the functions of a Stock Exchange?

The major functions of stock exchange are –

1. Providing Liquidity and Marketability to Existing Securities: The stock exchange is a secondary market for securities trading. Various types of securities are traded here on regular basis. As and when required, an investor can invest his money into securities and can reconvert his investment into cash in the stock market. It is a ready market for sale and purchase of securities, which increases the marketability and improves the liquidity of the securities.

2. Pricing of Securities: The forces of demand and supply in the stock exchange help in deciding the pricing of securities.

3. Safety of Transactions: The stock exchange is an organised market, where the interest of investors is fully protected. It has its own laws and bye-laws which have to be followed by each member of stock exchange else his membership is cancelled.

4. Liquidity: A stock exchange provides double benefit to the investors. Firstly, they can take the advantage of the change in the market price of securities and secondly they can convert the securities into cash at any time.

5. Speculation: The investors who purchase securities with a speculative motive, can easily trade through stock exchange.