A stock exchange is a centralized market where securities such as stocks, bonds, and derivatives are bought and sold. It serves an important function in the economy, providing liquidity, transparency, and access to capital for companies and investors. In this article, we will look at how a stock exchange works, who trades on it, and what mechanisms influence price formation.
Stock exchange structure and participants
A stock exchange is a complex system with many participants. Key players include:
- Issuers – companies that issue securities to raise capital.
- Investors – individuals and legal entities that buy stocks and bonds to make a profit.
- Brokers and dealers – intermediaries that provide access to trading and execute transactions.
- Regulators – government agencies that monitor the operation of the exchange and compliance with the rules.
All transactions on the exchange are conducted through special trading platforms, where supply and demand form market prices.
How do trades take place?
Trading on the stock exchange is conducted electronically. The basic principle is an auction, where the price is determined based on purchase and sale orders. If demand for a share exceeds supply, its price rises. If investors sell the asset en masse, the price falls.
The stock exchange operates on a specific schedule, and during the trading session, investors can place orders, change them, and analyze the market.
Main instruments of the stock market
Various financial instruments are traded on the stock exchange, including:
- Stocks are equity securities that give the right to a portion of the company’s profits.
- Bonds are debt instruments for which the investor receives a fixed income.
- Futures and options are derivative instruments that allow speculation on price changes.
Each instrument has its own characteristics, risks, and earning potential.
The role of the stock exchange in the economy
The stock exchange performs several key functions:
- Raising capital for business – companies receive financing by issuing shares and bonds.
- Liquidity – investors can quickly buy or sell assets.
- Formation of a fair price – the market determines the value of assets based on supply and demand.
Thanks to stock exchanges, companies grow, investors receive income, and the economy becomes more stable.
The stock exchange is a mechanism that ensures the efficient allocation of capital. Understanding how it works helps investors make informed decisions and take advantage of the opportunities in the financial market.
