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What is the stock exchange?

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Last editedMay 20212 min read

You’re sure to have heard of the stock exchange, or have seen its portrayal in movies as the beating, temperamental heart of the world’s economy, but there’s more to the stock exchange than numbers and shouting traders.

Stock exchange definition

A stock exchange is the name given to any centralized place where company shares can be traded, i.e., bought and sold. The stock exchange itself does not have ownership of any shares, it’s simply the marketplace where people can buy them. The purpose of a stock exchange is to create an optimum environment for trading, meaning there are enough buyers and sellers to ensure efficiency. The stock exchange environment also provides a secure and orderly way in which to trade.

The traditional image of a stock exchange is that of ‘floor traders,’ i.e., traders who buy and sell from the stock exchange building itself. The UK stock exchange, for example, is based in London and floor traders visit here to buy and sell ‘on the floor’ or ‘in the pit.’ However, as electronic trading has become widely adopted, access to a stock exchange building is no longer required.

In fact, electronic trading has become so prevalent that most stock exchanges no longer use the ‘open outcry’ method, and traders no longer visit the floor. The UK stock exchange in London, for example, has closed its trading floor.

What is traded on the stock exchange?

Different financial instruments can be traded on the stock exchange, including equities, commodities, and bonds. Companies, governments, and would-be investors all trade on the stock exchange.

In order to place stock on the stock market, a public company must conduct an Initial Public Offering, or IPO. This is when they sell shares to their first public shareholders, known as the primary market. Once this stage is complete, these shareholders can trade their shares as they see fit, entering them into the secondary market or an exchange. There are also auction exchanges, which is when traders put in competitive bids and are matched to a seller.

Some stock exchanges have a certain set of requirements before a company can trade there. The New York Stock Exchange and Nasdaq, for example, require companies to have a share price of at least $4.

How are London stock exchange prices decided?

Pricing for shares is based on supply and demand. The London stock exchange prices, or any stock exchange prices, will be based on the last price paid. This is why you’ll see stock tickers constantly changing throughout the day. If more people are selling a type of stock than are buying it, then the price will go down. The price offered on a stock exchange is never set in stone, and it’s not necessarily an accurate projection of the actual value of the stock.

Remember, the stock exchange is a marketplace, so the prices that shares sell at are at market value. Stock exchange prices will only ever reflect what people have been willing to pay, not what the stock is truly worth. That’s why when companies are hit by corporate scandals, stocks can temporarily drop – the true value of the business hasn’t changed, but demand has.

What is the world’s biggest stock exchange?

For those interested in trading, then there are several key names to always keep an eye on, including:

  • Nasdaq

  • New York Stock Exchange

  • Japan Exchange Group

  • London Stock Exchange

  • Shanghai Stock Exchange

What time does the London stock exchange open?

The UK stock market hours are 8am-4.30pm, with a lunch break between 12-12.02pm. The London Stock Exchange is not open on the weekend, meaning that it’s open for longer than most other stock exchanges in the world, which can make it the best option for staying ahead of the game. The New York Stock Exchange, for example, is only open from 9.30am-4pm.

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