Definition: A stock exchange is a financial institution that provides a marketplace for different securities. It is a place where different financial instruments are traded.
What Does Stock Exchange Mean?
These exchanges are frequently private entities that, in modern days, have built a digital trading platform supported by other institutions, such as a clearing house and they are regulated by government laws.
There are two ways to participate in a stock exchange, either through the primary or the secondary market. The primary market is where companies place their securities directly and the secondary one is where investors exchange these securities with each other. Stock exchanges also have certain requirements for a company to participate and gather funds trough them. These are frequently called listing rules.
They constitute the minimum conditions established by the exchange to approve any security being issued and companies must comply with them not only at the beginning, but also throughout the whole time they are actively participating in the exchange. Finally, a broker is an individual or a company that facilitates the trade of financial instruments within the stock exchange, charging a commission in return for their services.
Example
A hypothetic example would be the following: the Dallas Stock Exchange was formed in 1914 by the International Trading Company of Texas. Back then, the exchange functioned in a big building with different floors and each floor was assigned to the trade of a different financial instrument such as bonds or stocks.
After many years passed and financial technologies were further developed, the exchange came to be a virtual place where brokers place their client’s orders and companies gather funds through public offerings within the digital platform.
This exchange has an average daily trading volume of 122 million dollars and more than 250 companies participate in it. Its listing rules are very strict and the exchange is only accessible for companies based in Texas.
