What is a stock exchange?
A stock exchange is an organized trading venue whereshares, commodities and derivatives, among other things, can be traded. Trading on a stock exchange should be organized, fair and efficient. Most people who trade on the stock exchange use a bank or broker for this purpose. They form the link between the exchange and buyers/sellers.
Features of a stock exchange
Stock exchanges are regulated trading venues through which companies gain access to capital and investors can invest their money. These regulated trading venues have the advantage that trading is transparent, both in terms of price formation and transactions. The exchanges are obliged to treat all trading participants equally.
The most important features of a stock exchange at a glance:
- Meeting place for buyers and sellers, for supply and demand
- Trade is transparent, fair and secure
- Pricing according to supply and demand
- Publication of information on securities trading
The securities traded on an exchange are not necessarily physically present. Nowadays, buying and selling is purely electronic and can be seen in the market participants’ bank accounts.
Different types of exchanges
The classic form of stock exchange is the so-called floor trading or floor stock exchange, where trading takes place by call – either on behalf of a customer or for the on-site trader himself. However, there are now only a few floor trading exchanges (with the exception of the New York Stock Exchange/Wall Street – the largest stock exchange in the world). The majority of stock exchange turnover is now handled digitally.
Examples of purely digital exchanges include the NASDAQ technology exchange, the Xetra trading system and the Bitcoin exchanges.
Who is allowed to trade on stock exchanges?
Anyone with legal capacity can invest in the stock market via a financial services provider in order to benefit from the economic success of companies. Even if private investors do not have direct access to the stock exchanges, thanks to the internet they can now participate very easily and quickly in stock market activities.