If you are an investor, you would surely have heard about ‘stock exchanges.
However, for those who have not heard about it before but intend to invest soon, this article will introduce stock exchanges and what they are all about.
Table of Contents
What Is A Stock Exchange?
A stock exchange is a platform where buyers of stocks can connect with the companies that sell the stocks. You can also check out what to do before buying stocks here.
The stocks are traded on exchanges like the New York stock exchange (NYSE) and the Nasdaq.
The stock exchange platform in itself does not own any share, but it just acts as the medium through which investors can purchase stocks from sellers.
Stocks are usually traded through people known as ‘brokers’. However, it is worth knowing the relationship between the exchanges and the companies that also deal.
Various exchanges also have requirements that help them to protect their investors.
The stock exchange is a place where investors can trade various financial instruments.
Some of these instruments are equities, commodities, and bonds. The exchanges bring governments and corporations together with those who invest.
The exchanges are also responsible for providing liquidity in the financial markets.
This allows the trades on the exchanges to run smoothly. The sales are also responsible for ensuring that the transactions are done orderly and fairly so that viable financial information can be sent to investors and financial professionals.
Stocks of a particular company only become available to the investor after that company holds an IPO.
IPO stands for Initial Public Offering, in which the company sells some of its shares to an initial set of shareholders on the primary market.
After the Initial Public Offering (IPO), the shares float into the hands of public shareholders, and these shares are then sold on a stock exchange or the secondary market.
The stock exchange is in charge of tracking the order of each stock as well as the supply and demand that sets up the price of a particular stock.
The investor can even view this flow of price action for a stock depending on the brokerage account they are using.
For example, if the price of a stock is pegged at $60, the investor is then telling the exchange that he is willing to buy that stock at that price of $60.
The investor would also see something like a stock having an asking price of $62.
This means that there is somebody there who is willing to sell the stock for $62.
We have both ‘bid’ and ‘ask’ prices on the stock exchanges, and the difference between these two is known as the ‘spread’.
Auction exchanges
The auction exchange, also known as the auction market, is a place where sellers and buyers can put up competitive bids and offers.
When there is an auction bid, the current price of a stock or security is the highest price offered by a buyer at that moment.
And the lowest price listed is the price the seller is willing to accept for that stock or security.
When the trades are matched and paired together, they are then executed.
New York Stock Exchange (NYSE)
This is the biggest equities exchange in the world. The New York stock exchange is owned by the Intercontinental Exchange (ICE).
This happened after a merger between the European exchanges in 2007.
The companies that are listed on the NYSE are those with the most excellent credibility. This is because the companies have to meet some requirements before they can be listed on the NYSE.
They also have to comply with maintenance requirements which are yearly.
The exchange protects the investors who trade on the New York Stock Exchange through some minimum protections.
FAQs
What is a stock exchange in simple terms?
In simple terms, a stock exchange is a market where buyers and sellers are brought together to enable investments in stocks.
Is There Is Difference Between A Stock Market And A Stock Exchange?
A stock market is a term used to represent all the stocks trading in a particular country, while a stock exchange is a market where you can carry out platform equity trading.
Conclusion
From this article, we hope that you now understand what a stock exchange is and how it works.
As you can see from the FAQs, a stock exchange differs from a stock market.
If this article was helpful to you, make sure you browse through our website for more tech articles on various topics.
