Beginners Guide to the Stock Exchange

Consider the stock exchange as the market place where brokers and traders meet to trade stocks and other forms of securities. This is also a physical location where brokers and traders can be provided with the right facilities and tools for the effective issuance and the redemption of securities and other financial instruments. Securities that will be traded will come in either as the shares, the unit trusts, the derivatives, polled investment products and the bonds. But for these securities to be traded, these securities should be listed first on a certain stock exchange.

Speaking of listing the securities, often there is a designated location that can be used to record these securities. But in terms of the actual trade, trades between brokers and principals no longer just happens in the physical location rather this can now happen over the internet. The advancement of technology and the adoption of internet in effect democratize the trading system and give traders the advantages that they need in the form of speed and less cost in facilitating the transactions.

The stock exchange that is considered by many as the most important component of the stock market is known to perform a number of roles for the economy.

•    The stock exchange used by companies and business organizations as platform to raise money for expansion or other purposes. Company stocks are offered in order to expand their base and raise capital.
•    The exchange can mobilize savings that can be used for investment. If money is used in the stock exchange, the money can be used to benefit a number of sectors of the economy and in the process this will heighten growth.
•    The exchange can be used as well as platform for many companies to expand thru acquisitions and buy-outs. You may often hear and read in papers about companies merging and taking over another company.
•    Companies that are listed in stock exchanges are known for better record-keeping and management if compared to the privately-held companies since these publicly-held companies are liable to a number of owners. But this is not true in all cases, and as they say for every rule there is an exemption. Remember ‘Enron’ of the early 2000s? The company was listed as well on the stock exchange and owned by many but still unethical accounting standards undermine the company.
•    The stock exchange opens the market to small players since the exchange is designed in such a way that a person can buy the number of shares that trader can afford.
•    And more importantly, the stock exchange can also serve as an indicator if the economy is doing well or on a slump. So don’t be surprised if analysts will say that the economy is on a slump when the stock market is a non-performer or down.

Right now there are around twenty major stock exchanges in the world, with the New York Stock Exchange leading the list. The NYSE as it is called is labeled the ‘Big Board and the largest exchange by dollar volume traded. The rest of the largest exchanges are scattered in North America, Asia and Europe.