The stock exchange is a market
As in any other market, a set of products is listed, and buyers and sellers come together. The stock exchange is, above all, a meeting point of two major actors of the economy:
- Companies
- Savers
Companies
The companies most in need of funds to achieve their objectives have different ways of obtaining them. Selling financial assets on the stock exchange, such as shares, bonds, obligations etc, is one of the most interesting options. This is known as the primary market. Once these assets have been issued they can be bought and sold by investors on the stock exchange, which is known as the secondary market.
Savers
On the other hand, savers (both institutional and retail investors) seek a profit on their investment. Among the many existing investment options, they can choose to buy the assets issued by the companies on the stock exchange.
The stock market therefore fulfills a vital function in helping the whole economy grow, as it channels savings towards productive investment. It is thus a financing source for companies and an investment instrument for savers. It helps the flow of wealth.
In its status as a secondary market, the stock exchange offers investors in shares the possibility of realising their investment when they wish.
The stock exchange could hardly attract investors if they were not able to sell their shares, bonds, etc when they needed to turn them into cash. The liquidity available to investors on the stock market makes it possible to match their different investment horizons, which generally do not suit the permanent financing needs of companies. This mechanism allows companies and investors to meet their objectives.
Besides, the stock market solves, with increasing efficiency, the challenge of valuing financial assets based on demand and supply. That is, the price of financial assets on the stock exchange is an objective one, as it is the value put on them by the market.
In order for all these functions to be fulfilled efficiently, information is key. Information is to the markets what blood to a living organism; the cleaner and more dynamic it is, the better the whole system will work. All the information affecting the market must be disseminated quickly and clearly to all participants so that there can be a level-playing field for all of them. The stock exchange is consistently committed to transparency in the flow of the information.
Lastly, all the trades on an official, organised market such as the stock exchange are based on the rule of law and it facilitates equal access to all the participants.