Investor's wiki

Stock Exchanges

Stock Exchanges

What Is a Stock Exchange?

A stock exchange is a physical or electronic setting wherein the sale of securities like stocks is worked with by brokers, dealers, and market makers. Stock exchanges are essentially marketplaces for the efficient trading of stocks between unrelated gatherings in view of supply and demand.
The two major American stock exchanges are the NYSE (New York Stock Exchange) and the Nasdaq. The Amsterdam Stock exchange is the world's first and most established. Laid out by the East India Company in 1602, the exchange is currently owned by Euronext.
Stock exchanges permit investors to trade shares of companies' stock (alongside ETFs and certain different securities) without really finding and execute with individual buyers or sellers. In the past, shares were bought and sold in person on exchanges' trading floors by brokers, and keeping in mind that this actually happens to a lesser degree today, most modern exchange transactions are led electronically in light of the fact that electronic trading is less expensive and quicker.
The brokers, dealers, and market makers who work with transactions inside stock exchanges must be licensed individuals from the exchange. Essentially, to be listed on and traded through an exchange, companies must pay listing fees and meet certain requirements that might incorporate a base number of shares or shareholders as well as the maintenance of a base stock price.

For what reason Do Stock Exchanges Exist? Why Are They Important?

Stock exchanges exist to give a centralized setting through which buyers and sellers can exchange securities in a safe, regulated, and orderly way. Rather than physically seeking out a buyer for a stock they need to sell, an investor can just access an exchange by means of an electronic broker.
Exchanges likewise give the liquidity essential for investors to have the option to buy and sell stocks and different instruments sooner rather than later. They do this by making a place where numerous investors (and market makers — typically banks — who will buy and sell large numbers of shares at some random time) are brought together.
Since such countless shares are traded on major exchanges every day — and in light of the fact that market makers exist to give extra liquidity — it is genuinely simple for an investor to buy or sell shares of a stock at its current market price as opposed to ready to be associated with a viable party as a stock's price keeps on changing in the interim.

Why Are Stock Exchanges Known as the "Secondary Market?"

A primary market is one in which securities are made interestingly. For example, in the event that an investor were to buy a municipal bond straightforwardly from a province government, they would do as such on the primary market.
A secondary market, then again, is one in which existing securities can be traded by investors. Since stock exchanges fill this subsequent need, they are viewed as secondary markets.

What Are the Two Major American Stock Exchanges?

As referenced over, the two major American stock exchanges are the NYSE and the Nasdaq. The NYSE is larger and more seasoned, yet the Nasdaq was the principal only electronic exchange and is home to a considerable lot of the present top innovation industry stocks, including Google parent Alphabet and Facebook parent Meta.

The NYSE versus the NASDAQ at a Glance

NYSENasdaq
Created17921971
Market Cap (Jan. 2022)$28.26 Trillion$22.46 Trillion
Companies Listed (Dec. 2021)2,4343,566
Market TypeAuction Dealer
The market cap and listings data in this table are from Statista.

While the NYSE is the larger exchange by market cap, the Nasdaq has the most individual companies. The Nasdaq likewise offers lower listing fees, and its listing requirements are less severe than those of the NYSE.

Dealer Exchanges versus Auction Exchanges: What's the Difference?

In dealer exchanges — like the Nasdaq — numerous liquidity-giving market makers are in competition. For some random security, each market maker gives two prices: one lower price at which they will purchase the security, and one higher price at which they will sell the security. Brokers assist investors with buying from the dealer offering the least price or sell to the dealer offering the highest price.
This is rather than an auction market — like the NYSE — in which a centralized entity dissects the bids in general (buy offers) and asks (sell offers) for a specific security and matches the highest bid to the most reduced ask to make the current trading price of that security.

What Do Brokers and Market Makers Do in a Stock Exchange?

Inside a stock exchange, a broker is a licensed trading professional who buys and sells stocks and different securities for an investor's benefit. Brokers can be real individuals or trading platforms like Robinhood or E-Trade.
A market maker, then again, is a bank or financial institution that gives liquidity to a market by buying shares at whatever point somebody necessities to sell them and selling shares at whatever point somebody requirements to buy them. In exchange for the liquidity they give, market makers profit from the difference between the bid and the ask in each trade they work with. This difference is known as the bid-ask spread.

How Are Stock Exchanges Regulated?

As indicated by the Securities and Exchange Commission, exchanges (like the Nasdaq and NYSE) and the gatherings that work with their operation (like broker-dealers and market makers) must stick to standards set by the Division of Trading and Markets to guarantee the "fair, orderly, and efficient" exchange of securities.

What Are Some Major Non-American Stock Exchanges?

The NYSE and the Nasdaq are the two major American stock exchanges and are additionally the two largest stock markets in the world. Other major exchanges incorporate the accompanying:

  • Shanghai Stock Exchange (SSE)
  • Euronext
  • Tokyo Stock Exchange (TSE)
  • Hong Kong Stock Exchange (HKSE)
  • Shenzhen Stock Exchange
  • London Stock Exchange (LSE)
  • Bombay Stock Exchange (BSE)
  • National Stock Exchange (NSE)