A stock exchange is therefore a reliable barometer, to measure the economic condition of the country, as major changes in the economy are reflected in the prices of shares

Provides liquidity and Marketability to Securities: Stock Exchanges provides a platform where shares can be sold and bought by buyers and sellers and also provides a continuous market for buying and selling securities. The stock exchange assures the investors that their investment can be converted into cash at any time. Investors can confidently invest in long term projects, as stock exchanges help to convert their long term investment to short term or medium term.

Pricing of Securities: Based on demand & supply, Stock Exchanges helps in putting a value on the securities, and provides data in real-time to both buyers and sellers, and thus helps in the pricing of securities. Based on demand and supply factors, the stock market helps to value the securities. The demand for securities of companies that are profitable and growth-oriented is high as they get a higher valuation. The investors, the government, and the creditors find these valuations of securities useful. The investors get to know the value of their investment whereas the creditors can value their creditworthiness while the government can collect taxes on the value of securities.

Safety of Transaction: Trading is regulated by SEBI. All participants associated with stock exchanges are well regulated and are bound to work within the legal framework set by the regulator. The system ensures the safety of transactions. Only stocks of listed companies are traded, and in the stock exchange, the listing is done only after the soundness of a company is verified. The listed companies are bound to operate strictly under the rules and regulations, to ensure safety while dealing through stock exchanges.

Contributes to Economic Growth: People have the opportunity for investing money to buy and sell their shares. The stock exchange provides a platform for channelizing their savings into the best productive investment proposals that lead to capital formation & economic growth. Securities of various companies are bought and sold on the stock exchanges. The process of disinvestment and reinvestment, helps investors to park their money in the most productive investment proposal that leads to capital formation and economic growth.

Spread Equity Culture: Stock exchanges provide extensive information on the listed companies to the public, which helps in educating the public about investments in securities that leads to the spreading of wider ownership of shares.

Providing Scope for Speculation: When securities are purchased with the sole view of making profit through price movement to a target is called speculation. Within the provisions of law, stock exchanges provide scope for speculation in a controlled and restricted manner. Stock exchange permits healthy speculation of securities to ensure liquidity and demand for the supply of securities.

Better Allocation of Capital: Profit-making companies command higher prices for their shares which enables the companies to raise additional capital from the stock market easily. Stock exchanges facilitate the allocation of investor’s money to profitable channels as the investing public hesitates to invest in securities of loss making companies.

Promotes the Habits of Savings and Investment: Attractive opportunities to invest in various securities are offered by the stock market and this encourages people to save and invest more in securities of companies rather than investing in unproductive assets like jewelry.