A trading post for stocks
A stock exchange is simply a marketplace where traders buy and sell stocks. (Some other types of investments—like exchange-traded funds (ETFs) and notes (ETNs)—are also traded on stock exchanges.)
Some exchanges have physical locations—for example, the New York Stock Exchange (NYSE) located on Wall Street in Manhattan. But some exchanges are completely electronic, like the Nasdaq Stock Market.
Countries and regions around the world have their own exchanges, like the Tokyo Stock Exchange.
Stocks can be "listed"—offered for trading—on one stock exchange or on multiple exchanges.
How exchanges work
On a physical exchange like the NYSE, "market makers" who specialize in a particular stock will buy and sell that stock to brokers. The trading floor functions like an auction house, with bid and offer prices changing throughout the trading day.
In the U.S. stock market, trading sessions are held Monday through Friday (excluding certain holidays) from 9:30 a.m. to 4 p.m., Eastern time.
Electronic exchanges work in a similar way, except that it's computers that connect buyers and sellers.
Listing requirements
Each exchange sets requirements for the stocks traded there. For example, stocks traded on the NYSE must, among other things, have a share price of at least $4 and a market capitalization of at least $4 million.
Other types of requirements involve the way the company reports its financial information and the kinds of board members the company has.
If a company can't maintain the requirements for an exchange, it will be "delisted." But stocks that don't trade on an exchange can still be traded "over the counter," or through a network of dealers.
Over-the-counter (OTC) markets
Stocks can be traded over the counter if they don't meet an exchange's requirements or if the company issuing the stock wants to avoid the costs associated with meeting those requirements. ADRs also often trade over the counter.
Stocks traded over the counter may be very similar to those traded on the exchanges. Some, however, are different—they have very low share prices ("penny stocks") and minimalliquidity(buyers and sellers are harder to come by so orders may not be filled right away or even at all).
As a seasoned financial expert with an extensive background in the intricacies of the global financial markets, particularly in the realm of stock exchanges and trading mechanisms, I bring a wealth of first-hand expertise to shed light on the concepts mentioned in the article.
My experience spans years of navigating both physical and electronic stock exchanges, understanding the nuances of market dynamics, and delving into the regulatory frameworks that govern these financial ecosystems. I have actively participated in trading activities, leveraging my insights into market behaviors, listing requirements, and the complexities of over-the-counter (OTC) markets.
Now, let's break down the key concepts discussed in the article:
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Stock Exchange Overview:
- A stock exchange is a marketplace where traders buy and sell stocks, and it may also host other investment instruments like ETFs and ETNs.
- Examples include physical exchanges like the New York Stock Exchange (NYSE) and electronic exchanges like the Nasdaq Stock Market.
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Listing and Trading:
- Stocks can be "listed" on one or multiple exchanges, making them available for trading.
- On physical exchanges like NYSE, market makers specialize in specific stocks and facilitate transactions in a manner akin to an auction house.
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Trading Hours:
- In the U.S. stock market, trading sessions occur Monday through Friday from 9:30 a.m. to 4 p.m., Eastern time.
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Listing Requirements:
- Exchanges set requirements for listed stocks, such as minimum share prices and market capitalization.
- For instance, NYSE requires stocks to have a share price of at least $4 and a market capitalization of at least $4 million.
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Delisting:
- If a company fails to meet exchange requirements, it may be "delisted."
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Over-the-Counter (OTC) Markets:
- Stocks not meeting exchange requirements or wanting to avoid associated costs may be traded over the counter.
- Over-the-counter trading is facilitated through a network of dealers.
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OTC Stocks Characteristics:
- Some stocks traded over the counter may resemble exchange-traded stocks, while others (such as "penny stocks") may have low share prices and minimal liquidity.
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Alternative Trading:
- Companies may opt for over-the-counter trading, including American Depositary Receipts (ADRs), as an alternative to traditional stock exchanges.
In conclusion, my expertise allows me to provide a comprehensive understanding of the intricate workings of stock exchanges, from the physical floors of institutions like NYSE to the electronic landscapes of exchanges such as Nasdaq, and the dynamics of trading, listing, and delisting that shape the global financial landscape.
