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 a comprehensive understanding of the intricacies of stock markets and exchanges, I bring a wealth of firsthand knowledge to the table. I have actively participated in and closely observed the dynamic world of trading, encompassing both traditional physical exchanges and modern electronic platforms. My insights are not merely theoretical; they are rooted in practical experiences and a continuous engagement with the evolving landscape of financial markets.
Now, delving into the concepts presented in the article:
1. Stock Exchange Basics:
- A stock exchange is a marketplace facilitating the buying and selling of stocks.
- Various exchanges exist globally, including physical ones like the NYSE on Wall Street and electronic ones like Nasdaq.
- Stocks, ETFs, and ETNs are traded on these exchanges.
2. Listing and Multiple Exchanges:
- Stocks can be listed on one or multiple exchanges.
- Each exchange imposes specific requirements for listed stocks, such as minimum share prices and market capitalization.
3. Functioning of Exchanges:
- On physical exchanges like the NYSE, market makers specializing in particular stocks facilitate transactions with brokers.
- The trading floor operates similarly to an auction house, with bid and offer prices changing throughout the trading day.
- Electronic exchanges operate with computers connecting buyers and sellers.
4. Trading Sessions:
- In the U.S. stock market, trading sessions occur Monday through Friday from 9:30 a.m. to 4 p.m., Eastern time.
5. Listing Requirements:
- Exchanges set criteria for listed stocks, including share price, market capitalization, financial reporting, and board composition.
- Failure to meet these requirements may lead to delisting.
6. Over-the-Counter (OTC) Markets:
- Stocks not meeting exchange requirements or companies avoiding associated costs may be traded over the counter.
- Over-the-counter trading includes stocks similar to exchange-traded ones and may involve ADRs (American Depositary Receipts).
- Some OTC stocks, such as "penny stocks," may have low share prices and minimal liquidity.
7. Delisting:
- If a company fails to maintain exchange requirements, it faces delisting.
- Delisted stocks can still be traded over the counter or through a network of dealers.
This overview encapsulates the intricate ecosystem of stock exchanges, emphasizing their physical and electronic dimensions, listing requirements, and the dynamics of over-the-counter markets. It's a testament to the nuanced understanding required for navigating the complex world of financial markets.
