What is Stock exchange and how does it work?

All market economies have national stock exchanges, and Bangladesh is no exception. Now, when deposit rates are minimal, and the market situation is unstable, many are looking for new investment opportunities. For example, the total number of investors on the

Dhaka Exchange is already 5.5 million people. In this article, we will tell you what a stock exchange is, what functions it performs, and what is traded on it.

Stock market - what is it?

Let's understand what a stock exchange is. This is the name of a specialized organization that provides the opportunity to make transactions with securities. The exchange provides control over the participants and also guarantees the honesty and speed of transactions.

The participants of the stock exchange are:

Issuer. This is an organization that issues securities to raise capital. The issuer can be a company, city, or state.
Investor. An investor can be both a legal entity and an individual. Its purpose is to make a profit by investing capital in certain assets.
Professional bidders. These are companies that have passed special procedures for admission to trading. They act as intermediaries between issuers and investors (for example, brokers, management companies).

Functions of the securities exchange

The activity of the exchange involves the following functions:

Provision of a centralized place for the sale of securities.
Support and set a fair market price. Depending on the supply and demand for an asset on the stock exchange, quotes can change both for the better and for the worse.
Storage and collection of investor funds.
Ensuring openness and fairness of trading. The activity of the stock exchange in Russia is regulated by the Central Bank. This is necessary to protect investors, as well as control professional participants.
The distribution of funds between countries, various sectors of the economy and industry within one country, as well as between individual organizations.
Fixing the share of participation of all investors in certain assets.
Development of rules for participants in exchange trading.

What is traded on the stock exchange?

There are various investment instruments on the exchanges. For example, stocks, shares of mutual funds, bonds. We have already found out that securities are issued by issuers to raise capital. The issuer can offer the buyer a stake in its company by issuing shares.

When you buy shares, you automatically become a co-owner of the business. Of course, your share may be very small, but nevertheless, you have certain rights. For example, when you buy ordinary shares, you have the right to participate in the management of the company.

If you purchase preferred shares, then you are entitled to a portion of the business's profits (dividends). Bonds work differently. By placing bonds on the stock exchange, the company borrows money from investors with the promise of paying interest on the use.

How to make money on the stock exchange?

Suppose you bought a share of a company. You can earn on it in two ways: through dividends or through resale at a better price. If we talk about income on bonds, then it is formed differently. You can, for example, hold a bond to maturity without reselling it on the market. With this approach, your yield can be calculated as the sum of the coupons plus the difference between the purchase price of the bond and its face value. However, this difference can be both positive and negative. Remember that when investing in any security, you are not insured against the possible risks of capital loss.

It is worth noting that your profit will also depend on the strategy of behavior on the stock exchange. For example, if you are a conservative investor and prefer not to take risks, then protective instruments are suitable for you, and they, as a rule, have a low but stable return. If you are willing to take risks, you can look at instruments with higher returns. But at the same time, remember that in case of failure, you can lose investments.

The largest exchanges in the world

New York Stock Exchange. We are sure that many of you know about it. This exchange is the largest in terms of turnover in the world. Its history dates back to 1792. Now there are strict listing criteria for the admission of issuers to the New York Stock Exchange, so it is considered prestigious to place papers on it. The exchange lists securities of the largest and most famous companies, such as Bank of America, General Electric, Ford, etc.

NASDAQ. This is another largest US exchange founded in 1938. The exchange has always bet on the technology sector, which soon allowed it to carve out a niche. Traditionally, when mentioning the NASDAQ, investors associated with the shares of high-tech companies such as Google, Facebook, eBay, Intel. In addition, NASDAQ is engaged in attracting companies for initial public offering (IPO).

Tokyo stock exchange. Included in the list of the largest and oldest stock exchanges in the world. More than 2000 companies are registered on the site. Among them are automotive concerns Mazda, Mitsubishi, Toyota, as well as manufacturers of high-tech goods Nikon, Olympus, Casio, Sony.

Hong Kong stock exchange. This exchange offers services to investors in three markets. Securities, futures, metals are traded here. Typically, stock exchanges use symbolic tickers (short names for securities). For example, the ticker YNDX is used for Yandex and GAZP for Gazprom. As for the Hong Kong exchange, its main difference is the presence of numerical tickers. For example, RUSAL shares are traded on it under the number 0486.

London Stock Exchange (LSE). The London Stock Exchange is divided into main and alternative markets. To place securities in the main sector, the issuer must meet strict selection criteria. This sector of the market is considered the most prestigious. The alternative market is less demanding in terms of listing. It hosts securities of small and fast-growing companies.

What to remember

Stock exchange - a platform where transactions with securities are made

There are a large number of stock exchanges in the world, the most famous of them are New York, NASDAQ, London.

In Bangladesh, the most popular exchanges are Dhaka and Chittagong.

To make transactions on the stock exchange, you need to enlist the support of a reliable broker.