What’s a stock exchange? How does it works?

A stock exchange is an organized market where people can meet and trade companies’ shares that are listed on the Stock Exchange. At the same time, is where companies get listed and are able to sell shares, thus raising capital, if needed.

Usually, the Stock Exchanges are not open to everyone, you have to be a member of the exchange in order to trade shares on the exchange. And to become a member, you must pay a fee, a really big fee.

Generally, when a person wants to trade stocks of a company, the person gets a “member” of the stock exchange to trade stocks on his behalf. These members earn money by trading shares on behalf of people who are willing to pay them a fee, a commission for the service. And thus, the members of the stock exchange become stock brokers, this are, the famous brokers.

Usually each Stock Exchange operates products of the country or region where is situated, in that sense, a broker also makes the work easier, allowing us to operate and trade in practically all Stock Exchanges, and allowing us to trade stocks from different countries.

The different supervising authorities require trading systems to show each other their prices and it requires brokers and dealers to send their customer's orders to the market that has the best price that can be executed immediately.

One simple example is, if you are currently trading stocks through a broker, the broker has to find the best price for your shares, if that price is found on an exchange, then the broker trade on the exchange, if the best price is found at a dealer dominated market, like NASDAQ, then the broker trades with one of those dealers on your behalf. In general, these processes are already automated with the different trading platforms.

In some cases, your broker will actually trade with you, directly, acting in their capacity as a dealer. In the end, all you see is that your trade gets executed.

Simply put, a Stock Exchange is the physical place where transactions of shares of companies are carried out. At the same time, a broker on a stock exchange will help sellers and buyers to get the best possible price on the shares that one wants to buy or sell in exchange for a small commission.

You may also be interested in the following section: how to invest in stocks?.

Some interesting facts about the stock markets:

- The first stock exchange was created in 1602, in Amsterdam (at that time it wasn’t even Netherlands)

- In total, over €60,000,000,000,000 are traded per year, if all of the transactions carried out are combined

- Facebook has earned $16,000,000,000 from its listing on the Stock Exchange

- The New York Stock Exchange is the world's largest stock exchange per total market capitalization of its listed companies, followed by the NASDAQ (also from United States), and the London Stock Exchange usually competes for the third place with the Tokyo Stock Exchange

  • J.P. Morgan
  • merrill lynch
  • Barclays
  • Deutsche bank
  • Credit suisse
  • Goldman sachs - bank