Questions and Answers
What is the primary function of a stock exchange?
What type of stock exchange is the NYSE an example of?
Who are the key players that buy and sell securities on a stock exchange?
What is the advantage of a stock exchange providing liquidity?
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What is the role of regulators in a stock exchange?
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What is the difference between a primary exchange and a secondary exchange?
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What is the function of brokerages in a stock exchange?
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What is the advantage of a stock exchange providing price transparency?
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What is the hybrid market a combination of?
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What is the Over-the-Counter (OTC) market?
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Study Notes
Stock Exchanges
Definition: A stock exchange is a marketplace where publicly traded companies' shares are bought and sold.
Functions:
- Facilitates trading: Provides a platform for buyers and sellers to trade securities.
- Price discovery: Determines the prices of securities based on supply and demand.
- Risk management: Enables investors to manage risk through hedging and diversification.
- Liquidity provision: Ensures that buyers and sellers can easily enter and exit positions.
- Regulatory compliance: Ensures that listed companies comply with regulatory requirements.
Types of Stock Exchanges:
- Primary exchange: Where companies list their shares for the first time (e.g., NYSE, NASDAQ).
- Secondary exchange: Where existing shares are traded (e.g., regional exchanges).
- Over-the-Counter (OTC) market: A decentralized market where securities are traded directly between parties.
Key Players:
- Investors: Individuals, institutions, and organizations that buy and sell securities.
- Brokerages: Intermediaries that facilitate trading and provide research, advice, and other services.
- Listed companies: Companies that issue shares and are listed on the exchange.
- Regulators: Organizations that oversee the exchange and ensure compliance with rules and regulations.
Trading Mechanisms:
- Order-driven market: Buyers and sellers submit orders, and prices are determined by the intersection of supply and demand curves.
- Quote-driven market: Market makers provide prices, and investors trade at those prices.
- Hybrid market: Combination of order-driven and quote-driven mechanisms.
Advantages:
- Liquidity: Enables easy buying and selling of securities.
- Price transparency: Provides real-time prices and quotes.
- Regulatory oversight: Ensures fair and orderly markets.
- Diversification: Allows investors to diversify their portfolios across various asset classes and geographies.
Stock Exchanges
- A stock exchange is a marketplace where publicly traded companies' shares are bought and sold.
Functions of Stock Exchanges
- Facilitates trading by providing a platform for buyers and sellers to trade securities.
- Enables price discovery by determining the prices of securities based on supply and demand.
- Allows risk management through hedging and diversification.
- Provides liquidity provision, ensuring that buyers and sellers can easily enter and exit positions.
- Ensures regulatory compliance by listed companies.
Types of Stock Exchanges
- Primary exchanges list companies' shares for the first time (e.g., NYSE, NASDAQ).
- Secondary exchanges trade existing shares (e.g., regional exchanges).
- Over-the-Counter (OTC) market is a decentralized market where securities are traded directly between parties.
Key Players in Stock Exchanges
- Investors include individuals, institutions, and organizations that buy and sell securities.
- Brokerages are intermediaries that facilitate trading and provide research, advice, and other services.
- Listed companies issue shares and are listed on the exchange.
- Regulators oversee the exchange and ensure compliance with rules and regulations.
Trading Mechanisms
- Order-driven markets determine prices by the intersection of supply and demand curves.
- Quote-driven markets have market makers providing prices, and investors trade at those prices.
- Hybrid markets combine order-driven and quote-driven mechanisms.
Advantages of Stock Exchanges
- Liquidity enables easy buying and selling of securities.
- Price transparency provides real-time prices and quotes.
- Regulatory oversight ensures fair and orderly markets.
- Diversification allows investors to diversify their portfolios across various asset classes and geographies.
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Description
A stock exchange is a marketplace where publicly traded companies' shares are bought and sold. It facilitates trading, price discovery, risk management, and provides liquidity.
