Stock exchanges are an integral part of the financial market. A stock exchange market is the trading platform in the stock market, operated online. Companies get registered with the exchange under listing agreements. Their stocks are traded in the secondary market after completing the IPO process. Issuers of the securities, intermediaries, mutual funds, depositories, and investors are active stock exchange members. Stock exchanges allow trading numerous financial securities including shares, mutual funds, bonds, exchange-traded funds, and more.
A stock exchange functions through several digitally linked counters, boosting stock trading nationwide. Let us discuss the merits and demerits of stock exchanges.
Merits of Stock Exchange for Investors
1. Easy accessibility of securities
Investors enjoy the ready availability of financial securities. You can access the trading and demat account application with a broker and open trading accounts along with your demat account online. Both accounts help you to enter the stock market and start trading.
2. Well framed regulatory structure
Stock exchanges abide by all government-made laws, rules and regulations. They assure investors about securities’ authenticity. A company gets listed on stock exchanges after a thorough analysis of its capital structure, management, prospect, and other criteria. If the exchange finds any violations of rules, it imposes huge penalties.
Stock exchanges facilitate electronic trading platforms, ensuring complete security to the trades. They abide by the laws to ensure trading is protected against fraudulent activities. The online trading mechanism offers protection to investors by investigating the company and its business prospects before listing.
4. Increased Transparency
A stock exchange facilitates transparency by assessing the actual value of securities. This helps investors to trade securities effectively.
5. Protecting the general public interest
Stock exchanges safeguard investors by offering equitable opportunities and disclosing every information related to every security. It assures investors of the existence of good faith.
6. Easy and quick transfer
Now stock exchanges are operated online. It facilitates the quick transfer of securities from the company to the investor or from a seller to a buyer.
7. Online trading spread across geographies.
The computerized stock exchange network has a large investor base as they spread online trading across geographies, boosting economic growth.
8. Increased Liquidity
Stock exchanges allow investors to overcome illiquidity issues. If an investor wants to liquid his/her investment, it can be done quickly on the stock exchange. It will match a sell order with a buy order with the same quantity and price and then execute it.
9. No delayed settlement
Unlike the old offline trading system, a stock exchange ensures transparent and quick trade settlement. A stock exchange follows a T+2 trading settlement cycle for fast share transfer processing in the demat accounts.
Demerits of Stock Exchange
There are a few aspects of the stock market considered as demerits.
1. Volatile investments
The nature of the stock market is extremely volatile. Numerous factors affect the listed securities on the stock exchanges, such as government reforms, the nation’s budget, sectoral events, corporation disclosure, management change in a company, and various others. The impacts can be manifold, and generally, small investors are exposed to a high risk of falling stock prices.
2. Brokerage costs
Although the stock market is easily accessible through stock exchanges, the facility is available against brokerage costs. Investors cannot approach stock exchanges directly. You can access trading and demat account applications online with a SEBI registered stockbroker for free, but there are other costs charged by them from investors. These are charges for the smooth functioning of your brokerage accounts. It may lower the investor’s profit. However, these are minimal charges if you open trading account with a reputed discount broker.
Thus, it is clear that stock exchanges are more about merits than demerits. Consider a SEBI registered broker and access all stock exchanges at one place.