Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock).
Let us take an example for a better understanding of how market forces determine stock prices. ABC Co. Ltd. enjoys high investor confidence and there is an anticipation of an upward movement in its stock price. More and more people would want to buy this stock (i.e. high demand) and very few people will want to sell this stock at current market price (i.e. less supply). Therefore, buyers will have to bid a higher price for this stock to match the ask price from the seller which will increase the stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers (i.e. high supply and low demand) for the stock of ABC Co. Ltd. in the market its price will fall down. In earlier times, buyers and sellers used to assemble at stock exchanges to make a transaction but now with the dawn of IT, most of the operations are done electronically and the stock markets have become almost paperless. Now investor’s don’t have to gather at the Exchanges, and can trade freely from their home or office over the phone or through Internet.
The Securities Contract Regulation Act, 1956, under Section-2(j) defines stock exchange. A stock exchange thus, imparting marketability & liquidity to securities, encourages investments in securities & assists corporate growth. Stock exchange is regarded as “an essential concomitant of the capitalistic system of economy. It is indispensable for the proper functioning of corporate enterprise. It brings together large amount of capital necessary for the economic progress of a country. It is citadel of capital & the pivot of money market. It provides necessary mobility to capital & directs the flow of capital into profitable & successful enterprises. It is the barometer of general economic progress in... [continues]
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(2009, 11). Stock Exchanges: Comparative Analysis Between India & Uk. StudyMode.com. Retrieved 11, 2009, from http://www.studymode.com/essays/Stock-Exchanges-Comparative-Analysis-Between-India-255251.html
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