Question:
What are the procedures and importance of trading on a stock exchange?
Answer:
Trading on a stock exchange follows a systematic process:
- Placing an Order: Investors place orders through brokers to buy or sell securities.
- Order Matching: Orders are matched electronically in the stock exchange based on price and quantity.
- Settlement: Once the transaction is matched, the settlement process begins where the buyer pays for the securities and the seller delivers them. The importance of stock exchange trading includes:
- Liquidity: Stock exchanges provide liquidity, allowing investors to convert their securities into cash quickly.
- Transparency: Automated systems ensure transparency in the trading process with real-time price updates.
- Regulation: Exchanges are regulated by SEBI to prevent fraud and protect investors.
- Price Discovery: The stock exchange serves as a marketplace where the price of securities is determined through supply and demand.
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