As a new investor in the field of investing, you will find that most of your stock trades will be placed on one of a handful of stock exchanges.
You might be wondering now what a stock exchange is. In this article we will discuss to you everything you need to know about stock market exchange.
What is Stock Market Exchange?
A stock exchange is a medium where shares are bought and sold. Stock exchange is also an institution, organization, or association which hosts a market where stocks, bonds, options and futures, and commodities are traded.
Buyers and sellers are coming together to trade during specific hours on business days. However, exchanges impose rules and regulations on the firms and brokers who are involved with them.
Take note that if a specific company is traded on an exchange, it is referred to as “listed.”
In addition, securities that are not listed on a stock exchange are sold OTC or also known as Over-The-Counter. The companies who have shares traded OTC are usually smaller and riskier due for not meeting the requirements to be listed on a stock exchange.
There are various giant blue chip stocks like Berkshire Hathaway, who were traded on the OTC before migrating to the New York Stock Exchange.
A stock exchange is generally made up by an entity, which may be an organization or a firm. The organizations will provide an avenue for trading stocks to trade securities on the exchange.
The stock exchange will be the platform wherein buyers and sellers meet. It is also a set up sophisticated systems, which able keep track of the trade volume and price fluctuations.
Moreover, some of the main stock exchanges are the New York Stock Exchange, London Stock Exchange, and Shanghai Stock Exchange.
Stock Exchange vs Stock Market
Stock exchange is an important component of the stock market. Stocks that are sold in the stock market are listed in stock exchanges in relation to the country in which the stock are sold.
Meanwhile, the stock market is the general term that explains all platforms on which stocks are traded in an organized way. The stock market consists of the primary and secondary market. It is also a combination of the over the counter market, electronic communication networks, and stock exchange.
The stock market is the platform wherein shares are issued and traded among investors. It provides an avenue for corporations to gain capital for their expansion purposes and an opportunity for investors to attain partial ownership of the firm.
In addition, stock markets can also be classified through the behavior of the market participants, such as bull and bear market.
A stock exchange is only an organization that promotes stock trading through the variations of services offered to facilitate trade. Since companies form stock exchanges, they operate under a profit motive through providing opportunities for stock trading. While stock markets do not operate under any profit motive and are only facilitation for trade to take place.
Major Stock Exchanges in the World
There was one time when United States had thrived regional stock exchanges that were major hubs for their particular part of the country. For example, the Pacific Stock Exchange in San Francisco had an open outcry system where brokers would handle buy and sell orders for local investors who wanted to sell or liquidate their ownership stakes.
However, most of these were shut down, purchased, or merged after the rise of the microchip. This made electronic networks more efficient for finding liquidity so that an investor in California could easily sell his or her share to someone in Zurich.
Here are the current biggest stock exchanges in the world:
The New York Stock Exchange
This stock exchange is located in New York City. It has $19.223 trillion in listed market capitalization.
London Stock Exchange
It is located at London, England with $6.187 trillion in listed market capitalization.
Tokyo Stock Exchange
This stock exchange was formally known as the Japan Exchange Group, which is located in Tokyo, Japan. It has $4.485 trillion in listed market capitalization.
Also known as the National Association of Securities Dealers Automated Quotation, it is located in New York City. This electronic stock exchange has $6.831 trillion in listed market capitalization.
Hong Kong Stock Exchange
It is located in Hong Kong, Hong Kong with $3.325 trillion in listed market capitalization.
This South Korean stock exchange is located in Seoul, South Korea. As of now, it has $1.251 trillion in listed market capitalization.
National Stock Exchange of India
This stock exchange is located in Mumbai India, with $1.642 trillion in market capitalization.
Shanghai Stock Exchange
It is located in Shanghai, China, with $3.986 trillion in listed market capitalization.
This stock exchange is located throughout Europe, which includes France, Portugal, The Netherlands, and Belgium. It has $3.321 trillion in listed market capitalization.
This German stock exchange is located in Frankfurt, Germany. It has $1.762 trillion in market capitalization.
This stock exchange is located in Toronto, Canada with $1.939 trillion in listed market capitalization.
Shenzhen Stock Exchange
It is located in Shenzhen, China with $2.285 trillion in listed market capitalization.
SIX Swiss Exchange
This Zurich stock exchange is located in Zurich Switzerland. It has $1.516 trillion in listed market capitalization.
Tips for Beginners
Today we will give you some tips you can use before getting started in stock exchange.
Do Your Research
First thing you need to do is know what the stock market is. This tip is applicable to anything you want to get into, but it is more so for the stock market.
Companies list or sell portions of the corporation to increase the capital instead of borrowing from financial institutions or using its cash flow. You become a part owner of a company when you buy its shares of stock.
In addition, the more profitable a company becomes, the more of its share prices surge over time. There are also times when a company releases dividends in the form of cask or stocks, and these are actually credited to your account.
This is just a basic rundown on what is stock market. Take note that there is so much more to learn before you invest in it.
Allocate time to do your research and educate yourself. You can do this by attending trainings and seminars.
Control Your Emotions
As you know now that the principle behind investing in stock market is simple: buy low, sell high. However, many people get this wrong since they let their emotions influence their investment decisions.
It is alarming when the market is bearish, and the response of most investors is to sell their stock holdings to cut their losses. It is instinctive, but it might not be the best thing to do.
Remember that the decision to buy or sell should be made with more research and considerations. Don’t sell stocks at the first sign of price dropping, just think about it carefully before doing it.
Know Your Risk Profile
Before you invest in stock market you should know first if you are a conservative investor or a risk-trader. This should reflect on the stock you are buying. Because there are volatile stocks with the possibility of going high or go south.
Meanwhile, some stocks go up on a stable note in spite of market going bullish but it also remains steady when it falls.
Determining your risk profile will actually depend on your willingness to take the risk for a promising Return of Investments (ROI). There will be a time that this will change, especially if your financial objectives change.
Once you already know your risk profile, you can attend seminars and read up about investment articles and books. This can help you identify stocks that match your risk profile.
Don’t Stop Learning
Picking the right stocks to purchase is crucial to successful investing. You have to do your research first or you can read up. You can check the internet and look for the best industries which are doing well in their annual financial reports.
Remember to not fall for “hot stock tips” from people who might not know any better. You should also stay away from penny or speculative stocks to avoid gambling with your money.
For beginners, some of the most stable investments are the blue chip stocks. These stocks are from well-established and financially sound companies who have seen success in the market for many years.
Moreover, diversifying you investments will give you a safety net even if a specific industry is not doing well.
It is easy to understand stock market exchange as long as you have knowledge about it and stock market itself. It is also important for you as an investor to do your research before getting into it.
Knowing the different major stock exchanges in the world is also important if you plan to invest with stock exchanges.
Having just a little background about stock exchanges is not enough, you should strive to know more to succeed in this field.
Do not be afraid to do your own homework. Read a book or articles that can actually help you in investing.
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