What Is A Stock Exchange And What Are The Main Ones
A stock exchange, as opposed to a stock market, is a business which provides facilities to companies and individuals to buy and sell stock (also known as shares or equities) in publicly listed companies.
A stock market in contrast is the actual physical building which houses the facilities provided by the stock exchange.
In the old days a company owner could go to the stock market and sell shares in their company to anyone who was willing to pay the highest price for a percentage of ownership. Money generated from the sale of those shares would then go into expanding the company and growing the value of the shares.
The buyer would be given share certificates which they could then go back to the stock market at a later date (when the share value had grown) and sell those certificates to others for the higher price, thereby profiting from their initial investment.
Over the years, the fundamental principal has remained the same, but of course governments have imposed rules and restrictions on what can and cannot be done in order to stop the pioneers from unfairly manipulating the markets for personal gain.
Even today, businesses and individuals are continually trying to come up more and more creative ways to manipulate the stock market using a variety of financial instruments, yet still remain within the boundaries of the rules and restrictions which are in place.
Everyone is happy until those newly created financial instruments either collapse or enough complaints are made, then the governments step in again and impose new rules and restrictions and the cycle starts all over again. Governments control what is going on within the stock market by licensing a company to run it, and that company is the stock exchange.
The stock exchange itself makes money by charging a fee for every share traded in the stock market, and by providing share price data to the companies (such as stock broking firms) which operate inside the stock market.
Ironically stock exchanges offer shares in themselves which can be bought and sold in the stock market, thereby increasing their own value and generating money to improve the services they offer.
What Are The Main Stock Exchanges?
By the end of the twentieth century almost every country in the world has its own stock exchange, and many countries have more than one stock exchange. To suggest which ones are the ‘main ones’ is no really longer relevant as in the modern world you can trade on any exchange anywhere and do (almost) exactly the same thing.
You can buy shares in just about any stock exchange in the world through your local stock exchange.
Rules and restrictions do vary slightly from country to country, for example in some countries you cannot short sell stock, others have facilities for online trading which others have yet to adopt, however in principal you buy and sell shares just the same in every one of them.
In terms of size and volume (number of shares traded) the main ones would be:
The London Stock Exchange (LSE)
The London Stock Exchange provides facilities to stock brokerages to buy and sell shares in all stock exchanges worldwide. It is not the world’s oldest (the Amsterdam Stock Exchange is) however it is one of the most established and has through its predecessor (The Royal Stock Exchange) been unofficially handling the trading of shares since 1571. The LSE itself was formed in 1801.
New York Stock Exchange (NYSE)
The New York Stock Exchange began operating in 1863 although its predecessor the New York Stock & Exchange Board was established in 1792. The NYSE has grown to become by far the largest in the world in terms of the market capitalization of the companies listed on it. At the beginning of 2011 this was approximately US$14 Trillion.
NASDAQ Stock Exchange
NASDAQ (National Association of Securities Dealers Automated Quotations) is a totally technology driven exchange and not surprisingly lists primarily technology related stocks. Trades on the NASDAQ are fully automated and whilst it may be one of the newest stock exchanges in the world it has quickly grown to become the largest in the world in terms of the sheer number of securities listed on it.