How Does a Stock Exchange Function?

A stock exchange is a marketplace for buyers and sellers of stocks. Here are details of how it works.

A stock exchange is a marketplace, where stocks of several listed companies are traded. Think of a stock exchange like any other market, where buyers and sellers meet, and carry out transactions at a price agreeable to both the parties. It provides a single platform for traders all around the country to execute their trade.

Think of a stock exchange like any other market, where buyers and sellers meet,and carry out transactions at a price agreeable to both the parties.

However, a stock exchange cannot function independently. There are several components that come together when a single trade/transaction is exercised. Here is how it works:


When a company requires capital to expand, it can either approach a financial institution to borrow money or ask the general public to invest in the company. In case of the latter, the company has to approach an investment bank, which will help it get listed on the stock exchange. Shareholders, traders and brokers can trade the company's stock once it is listed on the stock exchange.

Stock exchange

A stock exchange serves as a platform that helps companies raise capital by issuing stocks to retail/institutional investors. Stock that is issued keeps trading handset the exchange even after the company is listed. The price of the stock is determined by the demand, supply and market demographics at a particular time, and keeps changing by the minute.


When a company is listed on the stock exchange, traders/investors buy and sell stocks with the aim of making money through price fluctuations. These traders/investor scan be individuals, corporate entities, governments, etc.


Brokers or brokering houses are middlemen between the buyers/sellers and the stock exchange. They have the authority to carry out a transaction on the behalf of the buyer or seller. It is mandatory for the investor to have a brooking account in order to trade/invest in stocks. Brokers charge an additional fee for the service they provide, which is known as brokerage.


This article (“Article”) is licensed to or is the property of Religare Corporate Services Limited (“RCSL”, which would mean to include its group companies, wherever applicable). This Article should not be reproduced or redistributed to any person or in any form in whole or in part without prior and explicit written consent of RCSL. This Article reflects the views of the author or content provider, and RCSL disclaims all liability, whatsoever, arising out of the substance or contents of this Article or in connection thereto, including any matter relating to infringement of intellectual property rights. This Article is purely for the purpose of public awareness and education and any reference to any financial product should not be construed as an offer or solicitation of an offer to buy or sell any securities, financial instruments or insurance. RCSL does not guarantee the accuracy or completeness of the information contained herein and there can be errors both typographical and in content. The Article may be referred only as a general guide and not as the ultimate source of the subject matter discussed. The Article must not be relied upon for taking personal, medical, legal or financial decisions and an appropriate professional must be consulted for specific advice tailored to specific situations. RCSL and any persons connected thereto do not accept any liability arising from the use of this Article. This disclaimer forms a part of, and should be read in consonance with, the Terms and Conditions of this site.

Copyright 2012 Religare. All rights reserved. Trademarks are the property of their respective owners.

This site is best viewed with Internet Explorer 7.0 or higher; Firefox 2.0 or higher.