Being a crucial part of the global economy, stock exchanges are the driver of trading activities and business development. We have all heard about the stock trade but not everyone understands how this whole thing works.
In this comprehensive guide, we will help you embrace this concept and answer all common questions concerning stock exchanges, their classification, how they work and help traders, and so much more.
The stock exchange is an organization that allows investors and traders to carry out transactions with securities. It provides control over the participants and guarantees fairness and speed of transactions. Each completed transaction is subject to registration.
There are different classifications of exchanges. Basically, they differ by the following characteristics:
The history of the emergence of the first exchanges refers to European countries, primarily Belgium, the Netherlands, Italy, Great Britain.
The reason for the formation of exchanges is associated with the appearance of the first government bonds, which created the conditions for the functioning of the stock market. To attract additional funds, the state began to issue bonds. These assets were placed in the domestic and foreign markets.
Back in 1531, the first stock exchange appeared in Belgium (Antwerp). Brokers and moneylenders met there to deal with business, government, and even individual debts. The first prototype of the stock exchange dealt exclusively with bills of exchange and bonds since, in the 1500s, there were no real stocks.
In 1602, the Netherlands East India Company officially became the world's first publicly-traded company by listing its shares on the Amsterdam Stock Exchange.
The development of the industrial economy in England in the 17-18th centuries stimulated the creation of the English exchange. At that time, new economic forms began to appear, issuing shares. The London Stock Exchange appeared in 1773 for the sale of securities.
However, since companies were not allowed to issue shares until 1825, there was an extremely limited turnover on the London Stock Exchange. That prevented LSE from becoming the largest stock exchange in the 19th century.
In 1792, the New York Stock Exchange (USA) was founded by 24 brokers who signed the first brokerage agreement. In 1882, the Chicago Stock Exchange appeared in the United States. The exchange began to flourish significantly in the late 1880s when the number of transactions in stocks and bonds increased and brought them more profits.
The Bombay Stock Exchange was the first-ever stock exchange in Asia - it appeared in 1875. Following its lead, the Tokyo Stock Exchange was opened in 1878 to provide Japan with the trade of government bonds that were issued for the samurai, a particular cluster of society. In 1891, American, British, and French businessmen established the Shanghai Stock Exchange.
In Russia, the first exchanges appeared during the reign of Peter I. In 1705, the first Russian stock exchange was established in St. Petersburg. But it was far from being called an efficient market since trading at that time was carried out in small volumes and the credit system was poorly developed. Mostly, the bills of state factories were traded.
Many people imagine the stock exchange as a place shown in cinema - a bunch of people screaming and talking by phone. Previously, there was a physical trading floor, and the bidders shouted offers to buy and sell. Now, most of the trading activity is going online.
Each transaction made on the stock exchange goes through several stages:
It is worth noting that there are certain periods of time in the stock market during which it is possible to make purchase and sale transactions. For example, some exchanges do not work on weekends.
The exchange maintains fair pricing for the securities market and serves to connect buyers and sellers. All issuers are required to submit their financial statements to the exchange before being admitted to trading.
Transactions take place at a certain time in accordance with the rules established on the exchange. Information about them is in the public domain, you can find it on the website of the corresponding exchange.
As for the stock exchange’s major functions, those include:
Every minute, a large number of operations are carried out on the exchange. Several types of participants are involved at once:
On the primary stock market, the first issued securities of enterprises and the state are sold. This market is dominated by over-the-counter transactions. Securities are bought mainly by credit and financial institutions.
The primary market is interconnected with the secondary market, where market participants buy and sell previously issued securities and their additional reserves.
Stock exchanges play an important role in the capital market: they get capital together without government intervention and channel it into investments that promise a high income. Continue reading with Litefinance.com...