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Questions and Answers
What is the primary function of a stock exchange?
What is the primary function of a stock exchange?
What type of stock exchange is the NYSE an example of?
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?
Who are the key players that buy and sell securities on a stock exchange?
What is the advantage of a stock exchange providing liquidity?
What is the advantage of a stock exchange providing liquidity?
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What is the role of regulators in a stock exchange?
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?
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?
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?
What is the advantage of a stock exchange providing price transparency?
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What is the hybrid market a combination of?
What is the hybrid market a combination of?
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What is the Over-the-Counter (OTC) market?
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.
