TRADING EXCHANGES

Trading Exchanges

An exchange is a marketplace where securities, commodities, derivatives and other financial instruments are traded. Exchanges core functions are to ensure fair and orderly trading; they also provide accurate price information for any products traded on their exchange. Companies, Governments and various other groups use exchanges as a mechanism to sell securities to a wider investing public audience.

Exchanges can be in physical locations although most trading floors or pits have now closed as technology has enabled most transactions to be executed electronically at a reduced cost. In a trading floor or pit traders interact with each other to conduct business. Most developed countries have trading exchanges where national and international trading occurs.

Electronic Exchanges

Electronic trading volumes account for most of the trading at exchanges as floors and pits become redundant. Electronic trading has become popular because with connectivity trading can take place anywhere in the world without having to be in a fixed physical location. Electronic trading has also opened opportunities for people to use exchange data to develop sophisticated algorithms and high frequency trading models.

Stock Exchanges

These are exchanges where stock or shares are traded and they are primarily used to raise capital for companies seeking to develop or grow their business. When companies first ‘float’ on a stock exchange it is known as an initial public offering or IPO for short. For companies listed on a stock exchange it is considered to add kudos to the company given that companies listed on a stock exchange are often industry or market leaders in their field. Stock exchanges will have various rules for a company to be listed and the company wishing to float on the exchange must meet those rules before being allowed to be listed on an exchange.