A Stock Exchange, also known as a Securities Exchange is an institution where traders and investors can buy and sell financial instruments. These instruments may include stocks of public limited companies, unit trusts, Exchange Traded Funds, pooled investment products, bonds and derivatives. The Stock Exchange provides liquidity to shareholders an in times of orderly markets facilitates an efficient option for trading in the security. As well as the facilitation of a trading venue, the exchanges may also provide a mechanism for the issue and redemption of securities as well as capital distributions in the form of income and dividends.
Stock exchanges have evolved from the open outcry at a central location such as the floor of the exchange involving market makers. Buyers and sellers are now matched via a continuous auction using an electronic trading platform requiring no actual physical location. There is often however a central location maintained for record keeping.
Using a Stock Exchange
When a business wishes to expand its capital structure or existing shareholders wish to exit thier holdings, they can do so in an Initial Public Offering (IPO). In order to facilitate this, the exchange imposes stringent requirements on the firm. IPO’s are a major part of the exchange’s business. Once this is completed, the shares trade on the secondary market also operated by the exchange.
However, there is not necessarily an obligation for stocks to be issued through the stock exchange, or even traded on the stock market. Over the Counter trading, known as the OTC market is a way in which traders can deal privately and not be subject to the exchange’s reporting requirements. Products such as derivatives, especially credit derivatives are often traded this was way because of their customizability. Stocks which trade this way, specifically on the OTCBB market in the U.S. carry an extremely high risk.
The Largest Stock Exchanges in the World
The table below lists the 10 biggest stock exchanges in the world by market capitalization of listed securities as of January 1, 2020. Valuations are rounded to the nearest trillion dollars.
| Exchange | Location | Listed Market Capitalization |
|---|---|---|
| New York Stock Exchange | New York | $23tn |
| NASDAQ | New York | $11tn |
| Tokyo Stock Exchange | Japan | $5tn |
| Shanghai Stock Exchange | China | $4tn |
| Euronext | Europe | $4tn |
| Hong Kong Exchange | Hong Kong | $4tn |
| London Stock Exchange | United Kingdom | $4tn |
| Shenzhen Exchange | China | $3tn |
| TMX Group | Canada | $2tn |
| Bombay Exchange | India | $2tn |
