How Does a Stock Exchange Function?

How Does a Stock Exchange Function?

When trading stocks, it is important for an investor to know where it is usually done. That is the stock exchange. The stock exchange does not own any shares. Instead, stock markets serves as market in where stock sellers market their shares with buyers.

As mentioned, investors can trade their shares in the stock market. There are numerous ways to do so as well. One is usually done through a broker as this is the common option open for most investors. However, investors should know more than just that. Traders should also know the relationship between exchanges and companies. This can give them better understandings on the market movement.

Stock exchange connects traders who wants to sell/market their shares. Here, they can liquidate their investments depending on the market conditions.

Main Functions Of Stock Exchanges

1. Stock Markets act as a primary market for companies, governments, municipalities, and other corporate institutions. It helps these firms raise capital by using the savings of their investors into productive ventures.

2. Stock Exchange provides market liquidity to investors. This means that sellers can liquidate their shareholdings better in the exchange as well.

3. Moreover, Stock Markets reduces risks. Traders often sell their securities here to minimize the investment risk.

4. Stock Exchanges track order movements for every stock. They monitor the supply and demand of security to set prices correspondingly. In addition to that, investors can monitor this depending on his or her broker.

There are currently a lot of stock exchange globally. NYSE currently holds the world’s most important blue chip stocks. Currently, the exchange listed 2,400 companies. Some of these companies are Walmart, Berkshire Hathaway, Exxon Mobil, and Coca-Cola.

Most of these accounts for the 87% market capitalization globally.

Bottom line: Before investors perform their trades with companies, they need to be listed first. Companies may not find this easy however. But once done, traders can officially market their shares in the exchange. As that is one of the functions of the market.

Stock exchange holds most of the stocks around the world. Read more about common stocks here. If you’re still undecided about stocks and forex, find you answer here!

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