Stock market definition economics its Importance and it working

Stock market

Stock exchanges are places where people buy and sell stocks . Companies agree to have their shares listed on exchanges of their choice, and members of each exchange can trade the shares listed there. In this article we will provide you the definition of stock market in economics.

These are some of the most important parts of today’s global economy. Many countries depend on the stock markets so that economic growth can be both evaluated, studied and used for business, trade, imports, exports, etc.

A stock exchange works somewhat like a farmers market. There, farmers pay the market to have space to sell their products. Buyers come to the market because they know that they will be able to buy from many farmers who sell many different agricultural products. Both farmers and buyers benefit from the market. =

The farmers market itself does not participate in the buying and selling of agricultural products; its role is simply to provide the space for farmers and buyers to have a place to meet and trade. Similarly, stock exchanges bring together current companies and shareholders who want to sell shares and investors who want to buy shares from them.

A little history

The first genuine stock markets did not arrive until the 16th century. However, there were many early examples of markets that were similar to stock markets.

In the 1100s, for example, France had a system in which couriers of exchange managed agricultural debts throughout the country on behalf of banks. This can be seen as the first major example of brokerage because men effectively negotiated their debts.

Later, Venetian merchants were credited with trading government securities as early as the 13th century. Soon after, they began to negotiate with government securities, especially cities in Italy.

The East India Company is widely recognized as the world’s first publicly traded company. There was a simple reason why the East India Company became the first company to go public: risk. In short, navigating to the farthest corners of the planet was too risky for a single company. =

When the East Indies were first discovered to be a haven of wealth and trade opportunities, explorers sailed there in droves. Unfortunately, few of these trips made it home. Ships were lost, fortunes were wasted, and financiers realized they had to do something to mitigate all that risk.

As a result, a unique corporation was formed in 1600 called the “London Governor and Merchants Company Trading the East Indies.” This was the famous East India Company and was the first company to use a limited liability formula .


Stock exchanges help individual investors put money to work in the stock market. Typically, the brokerage firms that investors use to buy and sell stocks are members of major stock exchanges or have agreements with exchange members, giving them the ability to buy and sell stocks.

Without stock exchanges, interested investors would have to go directly to companies whose shares they would like to buy or find other people who own shares and are willing to sell them. Instead, stock exchanges bring buyers and sellers together, usually without the two parties knowing the identity of the other. Thus, stock exchanges facilitate trading by providing what is known as liquidity – a greater ability to buy or sell stocks.

Stock exchanges also help companies raise money so they can grow their businesses. When a company decides for the first time to list its shares on a stock exchange and to sell shares to the public in an initial public offering, it typically uses the capital it receives from interested investors to expand its operations, conduct research and development, and increase investment. customer awareness through marketing. or paying for other things critical to long-term growth.

Investors can use stock exchanges to help distinguish healthy and reputable companies from more questionable ones. Stock exchanges have requirements that companies must meet to qualify to list their shares.

How do they work

There are two modes of operation that are generally used by most stock exchanges.

  • Some exchanges have traders physically located on a trading floor, whose job it is to work directly with each other to buy and sell listed stocks. Historically, this was the main way most exchanges worked.
  • More recently, e-commerce has become the most common method of Forex trading. Instead of physical trading floors where traders communicate directly with each other, computer platforms can connect buyers with sellers.

Today, many exchanges that used to rely solely on a physical trading floor have incorporated electronic trading capabilities into their trades, using both methods together.

The 10 most important stock exchanges in the world

Despite the ban on issuing shares, the London Stock Exchange was officially formed in 1801. Since companies were not allowed to issue shares until 1825, this was an extremely limited exchange. This prevented the London Stock Exchange from preventing a true world superpower.

That is why the creation of the New York Stock Exchange (NYSE) in 1817 was such an important moment in history.

The London Stock Exchange was the main stock market in Europe, while the New York Stock Exchange was the main stock market for America and the world.

Today, practically every country in the world has its own stock exchange. In the developed world, the major stock markets typically emerged in the 19th and 20th centuries shortly after the London Stock Exchange and the New York Stock Exchange were created. From Switzerland to Japan, all of the world’s major economic powers have highly developed equity markets that are still active today.

Even war-torn countries like Iraq have their own equity markets. The Iraq Stock Exchange does not have many publicly traded companies, but it is available to foreign investors. It was also one of the few stock markets that was not affected by the economic crisis of 2008.

However, despite all this, there are some stock exchanges that are considered the largest and most important. We will name 10 of them.

10.- Toronto Stock Exchange, Canada

It was introduced in 1852 and is maintained and operated as a subsidiary of the TMX Group. It is the 10th largest stock exchange in the world and has 2,231 publicly traded companies with a combined market capitalization of US $ 2.5 trillion as of January 2021.

9.- India Stock Exchange NSE

National Stock Exchange of India is located in Mumbai and is the first and largest in the Asian country. The stock market has approximately 1952 companies listing it and has a market capitalization of US $ 2.57 trillion as of January of this year.

8.- LSE Group of Italy and the United Kingdom

The London Stock Exchange is based in London and is the sixth largest stock exchange in the world. It is the oldest. It has more than 3,000 publicly traded companies with a combined market capitalization of $ 3.67 trillion as of January 2021.

7.- Euronext of Europe

The European New Exchange Technology is located in Paris, specifically at La Défense. Established in 2000 through the consolidation of the Amsterdam, Paris and Brussels stock exchanges.

It has around 1,500 publicly traded companies leading to a market capitalization worth $ 4.88 trillion as of January 2021.

6.- Shenzhen Stock Exchange, China

This stock exchange in Shenzhen China operates independently. As of January of this year 2021 the SZSE has 2,375 publicly traded companies and has a market capitalization of $ 4.9 trillion.

5.- Japan Stock Exchange

Japanese financial services corporation that operates multiple stock exchanges, including the Tokyo Stock Exchange and the Osaka Stock Exchange. JPX has nearly 3,500 publicly traded companies with a syndicated market capitalization exceeding US $ 6.35 trillion as of January 2021.

4.- Hong Kong Stock Exchange

It consists of 2,538 publicly traded companies with a healthy market capitalization of US $ 6.48 trillion as of January 2021.

3.- Shanghai Stock Exchange

Currently, Shanghai SSE is the third largest stock exchange in the world with a combined market capitalization of US $ 6.5 trillion as of January 2021.

2.- NASDAQ, United States

It is considered the world’s first publicly traded stock market. It has a combined market capitalization of $ 19.34 trillion as of January 2021.

1.- New York Stock Exchange, United States

It is the largest stock exchange in the world and has a market capitalization of US $ 24.49 trillion registered as of January of this year.

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