What is a Stock Exchange?

If you have ever heard people discuss the purchase and sale of shares, it is likely that they are referring to a stock exchange. A stock exchange is an important pillar of any financial market. Without it, investing would be a risky, confusing, and time-consuming process. To get better at investing, it is imperative to learn the fundamental concepts of the stock exchange.

What Is a Stock Exchange?

A stock exchange is a market where people trade financial instruments. These instruments can be stocks or funds like mutual funds or ETFs. When a person buys a stock, they become shareholders of that particular company. And when they sell a stock, they essentially give up ownership of that particular company.

A stock exchange acts as a platform that connects buyers and sellers. It facilitates the process of buying and selling shares in a fair, safe, and transparent environment. The prices are displayed publicly, and the terms are clearly stated. That's why so many investors trust the stock exchange, even if they don’t completely understand how it works.

It can also be considered an institution where businesses raise funds, and individuals buy shares to build wealth.

Stock Exchange Explained in Simple Terms

Let’s try to understand what a stock exchange is by comparing it to something similar and easier to understand from our daily life. In a regular marketplace, people buy and sell commodities. A stock exchange is quite like that marketplace except that people buy and sell stocks and other financial instruments.

Here are some functions of a stock exchange:

• Uses technology to connect buyers and sellers
• Ensures that the price is reasonable according to demand and supply.
• Records all transactions and ensures full transparency.
• Helps people invest with ease.

How Stock Exchanges Work

Here's a detailed process of how stock exchanges work:

• Companies list their shares: A company that wants to raise money usually lists its shares on a stock exchange. This is referred to as an initial public offering.
• Investors place orders: Investors place buy or sell orders through a broker or trading app. The order placed by the investor must include the price as well as the quantity of shares sought.
• The orders are matched: The stock market system matches buy and sell orders at the most favorable price.
• Trade is completed: Once the trade is complete, the shares go to the buyer, and the funds go to the seller.
• Settlement and records: The stock exchange keeps all the trade records. This helps in avoiding fraud.

The entire process happens in seconds with the help of technology.

What Happens in a Stock Exchange Every Day

A lot of people wonder what happens in a stock exchange every day. The answer is simple. Thousands of transactions take place every second.

Prices rise or fall depending on latest developments in the country, the company’s or sector’s performance, supply or demand for the stock or global events. Some people also buy or sell based on the big investors’ reactions or experts’ recommendations. The exchange is responsible for ensuring all this takes place in an orderly manner.

At times, trading is halted in events of heavy volatility in the markets to protect investors from losing money as a result of panic. One such example is when the global markets went through turbulence during the Covid pandemic during 2019-2020. The halting of the trading session makes stock exchanges secure and stable environments.

Role of Stock Exchanges in the Economy

The stock exchange plays a very crucial role both for the company and the investors.

For companies, stock exchanges act as a platform through which they can raise funds. Rather than borrowing money, companies issue stocks to the general public. This way, they are able to grow, and create more jobs.

Investors find a place to invest and grow their money. Any individual can invest in a successful business and earn from its profit in the form of dividends and from the stock’s price appreciation.

The stock exchanges make the economy more transparent and reveal the market value of companies. This brings about transparency in the market, giving investors and regulating bodies sufficient time to react to market volatility.

Major Stock Exchanges in the World

There are a lot of different types of stock exchanges all over the world. Some are relatively large and well-known. Here are some of the major stock exchanges in the world that help facilitate global finance:

New York Stock Exchange (NYSE)

NYSE is the world's largest stock exchange in terms of market capitalisation. It is based in New York City. It is where most of the world's largest companies are listed. NYSE is known to have very strict regulations as well as very transparent procedures.

NASDAQ

NASDAQ is also located in the United States. It is particularly well-known for its technology stocks. NASDAQ operates in a completely electronic manner. This ensures that there are no delays in transactions.

London Stock Exchange (LSE)

The LSE is considered to be among the oldest stock exchanges in the world. The LSE is known to be a prominent player in the global stock markets. Numerous global firms opt for listing at the LSE.

Hong Kong Stock Exchange (HKEX)

HKEX is an important link between Asian markets and international markets. Many companies from different countries aspire to get listed in HKEX. It is recognized for having strict regulations and advanced trading technology.

Singapore Exchange (SGX)

Singapore is a principal financial center in Asia. The Singapore Exchange provides trading in stocks, bonds, and derivatives. It is considered highly reliable because of its stable regulatory environment.

Australian Securities Exchange (ASX)

The ASX is the primary stock exchange in Australia. It has the latest technology and diverse financial products. The ASX plays an important role in the APAC region.

Toronto Stock Exchange (TSX)

TSX is the biggest market in Canada. It has a strong presence in sectors such as mining, energy, and financial institutions. International investors monitor it heavily.

Final thoughts

A stock exchange is more than just a place to trade shares. It is the backbone of modern investing. It connects companies with investors in a safe and transparent way.

If you understand what a stock exchange is, how it works, and why it matters, you can take the first step toward smart investing. Whether it is NYSE, NASDAQ, LSE, or other global platforms, stock exchanges play a vital role in shaping the financial world.

With clearly laid-out rules, strong technology, and transparent pricing, they make investing accessible for everyone.

Disclaimer: The information provided in this article is for educational and informational purposes only and should not be considered financial, investment, or trading advice.