The stock exchange, also known as the stock market or bourse, represents a place for selling and buying securities like shares, stocks, bonds, and other financial instruments. As a ready market for securities, the stock exchange has two main functions such as ensuring its liquidity and encouraging people to channel savings into corporate investment.<\/p>\n\n\n\n
As a pricing system, the stock exchange allocates capital among companies by determining current prices, which reflect the actual investment value of a specific company\u2019s stock.<\/p>\n\n\n\n
Typically, these prices represent the actual current value of the stream of expected income per share. In today\u2019s article, I will discuss stock exchanges, so let\u2019s begin!<\/p>\n\n\n\n
Stock exchanges aren\u2019t physical spaces but virtual ones, still they\u2019re highly regulated and dominated by electronic trading<\/a>. Some of the stock exchanges in the USA include the NASDAQ (National Association of Securities Dealers Automated Quotations) and the New York Stock Exchange (NYSE).<\/p>\n\n\n\n NYSE asks firms to keep a share cost of at least $4. The NASDAQ, on the other hand, is the first choice of companies that want to sell shares to the public market for the first time with an IPO. Moreover, it\u2019s the first electronic exchange that allows investors to buy and sell stock online<\/a> without a trading floor.<\/p>\n\n\n\n If stocks don\u2019t trade on listed stock exchanges, they can trade in the OTC (over-the-counter) market. This market isn\u2019t as formal. Or regulated. And these OTC-traded shares include smaller and riskier companies such as penny stocks that don\u2019t match the listing demands for standard stock exchanges.<\/p>\n\n\n\n When stockholders want to sell their shares in the future, they visit established stock exchanges looking for buyers. Without stock exchanges, they would have to look for buyers by contacting friends, family, or community members. <\/p>\n\n\n\n The stock exchanges make finding buyers easy in what\u2019s also known as the \u201csecondary\u201d market. You will probably never meet the person on the other side of your exchange with stock exchanges. It could easily be a retired teacher on the other side of the world, insurance groups, etc.<\/p>\n\n\n\n The trades operate like auctions. And traders who think that a business will do well will bid the price up. Those who think that it won\u2019t do well will bid it down. The buyers want to pay the lowest price possible, so they can sell for a profit later, while sellers want to earn more money.<\/p>\n\n\n\n Stock markets have multiple functions, such as the following ones I will discuss below!<\/p>\n\n\n\n The stock market must ensure that all market parties have fast access to information for all buy and sell orders, depending on the regular terms of supply and demand.<\/p>\n\n\n\n So, they help in the transparent and equal pricing of securities. They also should do efficient matching of relevant buy and sell orders.<\/p>\n\n\n\n For instance, there could be three potential buyers who have submitted orders for purchasing Microsoft shares at $100, $105, and $110. And there could be four sellers winning to offer Microsoft shares at $110, $112, $115, and $120.<\/p>\n\n\n\n The stock exchange, through automated trading systems, must ensure the matching of best buy and best sell, which in this case is at $110 for the provided quantity of trade.<\/p>\n\n\n\n Stock exchanges should support a very efficient system for price discovery, which stands for the process of determining the right price of securities. It\u2019s often done by assessing market supply and demand and other subjects associated with the transactions.<\/p>\n\n\n\n For instance, a US-based computer company has a market capitalization of $5 billion. And it\u2019s trading for $100. A news article comes in that the EU regulator has added a $2 billion fine on the firm, which means 40 percent of the company\u2019s value can be wiped out.<\/p>\n\n\n\n While the exchange may have applied a trading price range of $90-$110 on the company\u2019s share price, it should efficiently alter the legal trading limit to meet the possible changes in the share price. Otherwise, shareholders can struggle to trade at a fair price.<\/p>\n\n\n\n Collecting the number of sellers and buyers for specific financial securities isn\u2019t possible for markets. Still, they must ensure that whoever\u2019s qualified and open to trade obtains quick access to submit orders that should get completed at fair prices.<\/p>\n\n\n\n A more significant number of participants ensures a more efficient work of stock markets. Still, stock markets must ensure that all market participants meet the rules and regulations, leaving no space for default by any parties. They also should be verified and follow the regulator\u2019s rules.<\/p>\n\n\n\n Marketplaces consist of various participants like market makers, speculators, traders, investors, hedgers, and so on. And all of these market participants have different roles in the stock market.<\/p>\n\n\n\n For example, investors can purchase and keep stocks for an extended period, while traders can enter and exit positions within seconds. Market makers, on the other hand, provide necessary liquidity.<\/p>\n\n\n\n Hedgers prefer trading in derivatives to mitigate the risk included in investments. So, exchanges must ensure that all of these parties can work properly, so the market can also work correctly.<\/p>\n\n\n\n Not only institutional and wealthy investors take part in the stock market. Smaller investors with a lack of financial knowledge participate as well. And the market must implement measures to prevent smaller investors from making the wrong decisions when investing in stocks and other products.<\/p>\n\n\n\n So, exchanges should protect every investor as well as reduce financial loss and build trust. For example, a stock exchange can sort stocks in different segments depending on their risk profiles, as well as enable restricted or no trading by everyday investors in high-risk stocks to prevent financial loss.<\/p>\n\n\n\n The stock market heavily regulates the listed companies. Also, market regulators monitor their dealings. Furthermore, stock exchanges place specific requirements.<\/p>\n\n\n\n For instance, they require the filing of quarterly financial reports promptly and instant reporting of any crucial developments to ensure all market parties know about corporate changes.<\/p>\n\n\n\n Finally, if someone fails to complete the regulations, they will have to deal with a suspension of trading by the stock markets and other disciplinary measures.<\/p>\n\n\n\n A proper monetary authority or institute or local financial regulator has the task of regulating the stock market of a country. For instance, the Securities and Exchanges Commission regulates the stock markets in the US. It\u2019s a federal agency that operates independently of political pressure and government.<\/p>\n\n\n\n The stock exchanges aren\u2019t simple! On the contrary, they\u2019re complex and consist of many players. In this section, I will discuss some of the most significant market participants, so let\u2019s take a closer look.<\/p>\n\n\n\n Brokers represent companies or people that stand for the interests of outside investors at markets. Also, because only members of stock exchanges can purchase and sell assets on them, brokers work as agents who locate buyers and sellers to compete for outside investors, such as yourself.<\/p>\n\n\n\n These market participants usually charge fees or commissions for their service. Some brokers even work for the stock exchange and help keep things moving in the right direction.<\/p>\n\n\n\n The dealers purchase and sell securities for themselves. They can either be individuals or companies, and they always try to make some money from the difference between the prices.<\/p>\n\n\n\n In other words, they aim to purchase stocks at specific prices not so they can hold onto them for a more extended period but because they try to turn them around and sell them for a higher price.<\/p>\n\n\n\n In this manner, although brokers don\u2019t represent outside investors on the stock exchanges, they can end up helping by making trades easier with them indirectly in their pursuit of profit.<\/p>\n\n\n\n You can also find different market participants who come together like brokers and dealers, also known as broker-dealers. They combine into one company and purchase and sell stocks on behalf of investors on the outside. They can also trade for their benefit.<\/p>\n\n\n\n The market marker<\/a> role is played by dealers who purchase and sell stocks for profit and boost the overall liquidity of stock exchanges. The latter helps facilitate better trading and makes orderly markets.<\/p>\n\n\n\n The NYSE, for instance, has a category of market makers, also known as specialists, who only trade in one or multiple individual stocks.<\/p>\n\n\n\n The trading that takes place on stock exchanges comes in different forms. So let\u2019s learn more about the different types of stock exchanges.<\/p>\n\n\n\n The name of these markets is self-explanatory.<\/p>\n\n\n\n So basically, the price of securities in these markets is set by the highest bidders. And that\u2019s called a bid. It\u2019s also determined by the lowest price the seller is open to accepting, called an offer.<\/p>\n\n\n\n In these markets, broker-dealers submit bids and offers. Then, they execute trades on the behalf of their clients. Or themselves, if they\u2019re acting as dealers.<\/p>\n\n\n\n In dealer markets, dealers announce the prices they\u2019re willing to purchase or sell particular stocks. Then, they facilitate all transactions by using their money to purchase and sell the securities. This boosts the liquidity of the stock market.<\/p>\n\n\n\n In other words, in dealer markets, dealers can purchase stock from you at a specific price, sometimes without having buyers in mind to sell your stock to.<\/p>\n\n\n\n And since you don\u2019t have to wait for buyers to pay you, you\u2019re free to purchase other securities from the dealer. Or utilize that money in other ways.<\/p>\n\n\n\n Electronic exchanges<\/a> utilize technology to connect buyers and sellers in a virtual marketplace instead of requiring brokers to sell on trading floors.<\/p>\n\n\n\n Today, every stock exchange provides electronic trading, and few exchanges still have in-person trading floors. The ECNs (electronic communication networks) enable the purchase and sell orders for stocks and other securities to be executed without market makers.<\/p>\n\n\n\n In the USA, all electronic communication networks should be registered with FINRA (Financial Industry Regulatory Authority) as broker-dealers.<\/p>\n\n\n\n OTC (over-the-counter)<\/a> exchanges allow the purchase and sale of securities outside of stock exchanges, typically via broker-dealer networks.<\/p>\n\n\n\n Usually, stocks traded over the counter are small businesses that don\u2019t meet the requirements of stock exchanges, like penny stocks.<\/p>\n\n\n\n The stock exchanges operate as agents for the economy by enabling trades and spreading information. Let\u2019s learn more about the three primary purposes of stock exchanges.<\/p>\n\n\n\n Via IPO (initial public offerings) or releasing new shares, companies can raise capital to fund expansion projects and operations. So this gives companies avenues for boosting growth.\u00a0<\/p>\n\n\n\n Businesses that list themselves publicly on stock exchanges should meet the reporting standards that regulating bodies apply.<\/p>\n\n\n\n This includes having to publicly and regularly report their earnings and financial statements to their shareholders. The actions of the companies\u2019 management affect their value because they\u2019re constantly under public observation.<\/p>\n\n\n\n Public reporting helps ensure that management will execute decisions and actions that benefit the goals of the companies and their shareholders, thus acting efficiently.<\/p>\n\n\n\n Not only boosting management efficiency, but exchanges also help economic efficiency via the issuing of capital. They provide avenues for people to invest their money instead of saving them.<\/p>\n\n\n\n The capital people would otherwise save is used towards economic benefits, resulting in a better economy. Also, stock exchanges provide liquidity because it\u2019s easy to sell one\u2019s holdings.<\/p>\n\n\n\n And by offering real-time price data and liquidity on companies' shares, stock exchanges boost a better market as well by enabling investors to determine the value of business via supply and demand actively.<\/p>\n\n\n\n There\u2019s a wide selection of stock exchanges around the world. Below, I will review a few of the many major stock exchanges worldwide, so take a look. We also have a list of stock exchanges here<\/a>.<\/p>\n\n\n\n The NYSE is one of the biggest stock exchanges in the world where some of the most popular companies, such as Amazon, Apple, and much more, trade.<\/p>\n\n\n\n The New York Stock Exchange is an auction market where most trading happens virtually. Still, the stock exchange also has a physical trading floor.<\/p>\n\n\n\n The NASDAQ is another well-known stock exchange. It\u2019s a dealer-market stock exchange that pioneered electronic trading. The company was established in the 1970s and makes a great place for big tech firms who want to trade. It\u2019s their first choice because of the lower obstacle to public trading.<\/p>\n\n\n\n One of the largest stock exchanges in Europe is the LSE, where thousands of well-known companies from all around the world trade. The stock exchange also has a physical trading floor in London.<\/p>\n\n\n\n If you\u2019re looking for stock exchanges in China, look no further than the Shanghai stock exchange. It\u2019s one of the biggest stock exchanges that trade two types of stocks, including A-shares and B-shares.<\/p>\n\n\n\n The B-shares are quoted in US dollars, so they\u2019re available for foreign investment, and foreign investors can only invest in these shares if they meet specific criteria. A-shares, on the other hand, aren\u2019t available for foreign investors, and they\u2019re quoted in Yann.<\/p>\n\n\n\n You can open a brokerage account<\/a> online and start purchasing and selling securities listed on popular stock exchanges.<\/p>\n\n\n\n If you\u2019re looking for step-by-step guidance and personalized advice, you can choose a financial advisor as your broker. You can also contact a full-service brokerage company. Make sure you read our guide on buying stocks<\/a>.<\/p>\n\n\n\n No matter what you pick, your broker will send buy and sell orders to broker-dealers who trade on stock exchanges. They always try to find buyers or sellers who can pay the price specified in your order. The execution of your order can take more or less time, depending on the market's liquidity.<\/p>\n\n\n\n If you\u2019re unsure what stock exchanges to choose and what stocks to invest in, consider doing it with a Robo-advisor.<\/p>\n\n\n\n These advisors utilize your risk tolerance and financial goals to create a strategy for you and automate the investment process. So, consider this option if you\u2019re a beginner.<\/p>\n\n\n\n Naturally, there\u2019s competition between individual stock exchanges because they all chase the maximum transaction volume. But stock exchanges as a whole have other competitors such as the following.<\/p>\n\n\n\n Dark pools<\/a> or private exchanges for securities trading not accessible by the investing public.<\/p>\n\n\n\n Contrary to popular belief, dark pools are hevily regulated by regulatory bodies. <\/p>\n\n\n\n With the booming popularity of blockchains, many crypto exchanges<\/a> have also surfaced.<\/p>\n\n\n\n Such exchanges provide places for cryptocurrencies and derivatives associated with those assets.<\/p>\n\n\n\n They all threaten regular stock markets because they make the whole process digital and offer low-cost or zero-cost services. This makes crypto exchanges more appealing than traditional ones.<\/p>\n\n\n\n Stock markets play a crucial role in the free-market economy. They enable companies to produce capital by offering corporate bonds and stock shares.<\/p>\n\n\n\n They enable investors to take part in the financial goals of the businesses, make money via capital gains, and earn money via dividends, which comes with a risk.<\/p>\n\n\n\n Professional money managers and institutional investors have some privileges because of their wealth, high risk-taking ability, and better knowledge. But stock exchanges try to provide a level ground to most individuals.<\/p>\n\n\n\n Overall, stock markets work as platforms via which investments and savings of individuals turn into new investment opportunities. And in the long run, this helps in economic growth and capital formation for the country.<\/p>\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":1,"featured_media":506809,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_stopmodifiedupdate":false,"_modified_date":"","_important_terms":"","inline_featured_image":false,"_uag_custom_page_level_css":"","ub_ctt_via":"","advgb_blocks_editor_width":"","advgb_blocks_columns_visual_guide":"","footnotes":""},"categories":[225],"tags":[],"table_tags":[],"acf":[],"featured_image_src":"https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-exchanges.png","author_info":{"display_name":"Ziga Breznik","author_link":"https:\/\/www.publicfinanceinternational.org\/authors\/"},"author_meta":{"display_name":"Ziga Breznik","author_link":"https:\/\/www.publicfinanceinternational.org\/authors\/"},"featured_img":"https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-exchanges-300x169.png","uagb_featured_image_src":{"full":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-exchanges.png",560,315,false],"thumbnail":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-exchanges-150x150.png",150,150,true],"medium":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-exchanges-300x169.png",300,169,true],"medium_large":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-exchanges.png",560,315,false],"large":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-exchanges.png",560,315,false],"1536x1536":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-exchanges.png",560,315,false],"2048x2048":["https:\/\/www.publicfinanceinternational.org\/wp-content\/uploads\/stock-exchanges.png",560,315,false]},"uagb_author_info":{"display_name":"Ziga Breznik","author_link":"https:\/\/www.publicfinanceinternational.org\/authors\/"},"uagb_comment_info":0,"uagb_excerpt":null,"coauthors":[],"tax_additional":{"categories":{"linked":["Knowledge Base<\/a>"],"unlinked":["Knowledge Base<\/span>"]}},"comment_count":"0","relative_dates":{"created":"Posted 2 years ago","modified":"Updated 2 years ago"},"absolute_dates":{"created":"Posted on January 31, 2022","modified":"Updated on August 10, 2022"},"absolute_dates_time":{"created":"Posted on January 31, 2022 4:57 pm","modified":"Updated on August 10, 2022 1:38 pm"},"featured_img_caption":"","series_order":"","_links":{"self":[{"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/posts\/506808"}],"collection":[{"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/comments?post=506808"}],"version-history":[{"count":9,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/posts\/506808\/revisions"}],"predecessor-version":[{"id":509429,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/posts\/506808\/revisions\/509429"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/media\/506809"}],"wp:attachment":[{"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/media?parent=506808"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/categories?post=506808"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/tags?post=506808"},{"taxonomy":"table_tags","embeddable":true,"href":"https:\/\/www.publicfinanceinternational.org\/wp-json\/wp\/v2\/table_tags?post=506808"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}How Does The Stock Exchange Work?<\/h2>\n\n\n\n
Functions Of A Stock Market<\/h2>\n\n\n\n
Fair dealing in securities transactions<\/h3>\n\n\n\n
Efficient price delivery<\/h3>\n\n\n\n
Liquidity maintenance<\/h3>\n\n\n\n
Security and validity of transactions<\/h3>\n\n\n\n
Support all eligible market participants<\/h3>\n\n\n\n
Investor protection<\/h3>\n\n\n\n
Balanced regulation<\/h3>\n\n\n\n
Regulating the stock market<\/h3>\n\n\n\n
Key Players At A Stock Exchange<\/h2>\n\n\n\n
Brokers<\/h3>\n\n\n\n
Dealers<\/h3>\n\n\n\n
Broker-dealers<\/h3>\n\n\n\n
Marker makers<\/h3>\n\n\n\n
Different Types of Stock Exchanges<\/h2>\n\n\n\n
Auction markets<\/h3>\n\n\n\n
Dealer markets<\/h3>\n\n\n\n
Electronic exchanges<\/h3>\n\n\n\n
OTC exchanges<\/h3>\n\n\n\n
Purpose of Stock Exchanges<\/h2>\n\n\n\n
Raising capital<\/h3>\n\n\n\n
Corporate governance<\/h3>\n\n\n\n
Economic efficiency<\/h3>\n\n\n\n
Best Stock Exchanges<\/h2>\n\n\n\n
New York Stock Exchange<\/h3>\n\n\n\n
NASDAQ<\/h3>\n\n\n\n
London Stock Exchange<\/h3>\n\n\n\n
Shanghai Stock Exchange<\/h3>\n\n\n\n
How To Buy Stocks On Stock Exchanges?<\/h2>\n\n\n\n
Competition Of Stock Markets<\/h2>\n\n\n\n
Dark pools<\/h3>\n\n\n\n
Blockchain ventures<\/h3>\n\n\n\n
Conclusion<\/h2>\n\n\n\n