Stock exchange

The stock exchange is the venue for organized, standardized, centralized and, thanks to all this, safe trading of various goods.

The scene may be familiar from countless movies: in a large hall, a lot of people are on the phone and shouting at the same time, they are waving different colored papers, and they are looking with ardent eyes at the letters and numbers, exchange rates and stock market indices rushing on the large wall boards and monitors. By the end of these movies, someone will be very rich and others will lose their fortune. In the movie template, this is the stock exchange.

In reality, the stock exchange is a market, in its basic function the same as any ordinary food or antique market anywhere in the world. The stock exchange exists so that sellers and buyers of certain products can meet and do business with each other in organized circumstances.

However, there are two very important differences between an stock exchange and a regular market. One of the differences is that the nature and complexity of the goods and products is different from most other marketplaces. The other difference stems from the first one: compared to other markets, regulation is stronger.

Let's start with what can be bought on the stock exchanges? From the point of view of products, we know basically two types of exchanges: value exchanges and commodity exchanges. 

Foreign currencies and publicly issued securities can be traded on the stock exchange - the most common commodities are shares. Commodity exchanges offer certain commodities that can be standardized to a very large extent (e.g. fodder corn, oil, precious metals).

Regardless of which type of stock exchange we are talking about, standardization is a basic, common feature of the products traded there. This means that each copy of a given product must be exactly the same and therefore interchangeable. In practice, this means that we don't have to and can't sort through the apples on the stock market like we do at our favorite greengrocer's counter. The shares of a given series of a given company or a unit of feed corn or a barrel of North Sea crude oil are always exactly the same, i.e. they can be exchanged for each other.

This is an extremely important rule for two reasons. On the one hand, because the things that trade on the stock market are never physically there on the floor, moreover, today's dematerialized securities really do not exist physically anymore, they are usually just electronic signals in the registers. On the other hand, it can be ensured that demand and supply can easily meet, i.e. the market is liquid. If someone wants to buy, say, 100 pieces of one of the shares, he does not have to find a seller who would sell 100 pieces of the same paper at the given price. It is perfect if there are two sellers with 50-50 shares, as well as if someone sells him 100 of the 200 shares. Since all of the given shares are the same, it does not matter whether there are one buyer or ten sellers in the trade. 

However, an important question still needs to be answered: how can it be ensured that these often complicated deals, even involving many buyers and sellers, can be accounted for? This is what clearinghouses are for, whose task is to clear and fulfill transactions concluded by market participants.

Today, stock market trading has become almost completely electronic. (There are other markets where presence, so-called open bid trading takes place, but their number is decreasing.)  Electronic trading means that the shouting people in our film example have also disappeared from most of the stock exchanges and have moved to the front of the computers. They are the brokers, who have the privileged role of being both buyers and sellers of the given products in the operation of a stock exchange. On the stock exchange, we, ordinary people, cannot do business directly: if we want to buy or sell something, we have to entrust it to a stock exchange member brokerage firm, which will arrange the deal for us.

The type of business we instruct our broker to conclude can be quite varied. The simplest situation is when we want to sell or buy something immediately: this is called an spot or prompt deal in stock market language. 

It is one degree more complicated than this when the deal is concluded now, but the performance only takes place at a later date: these are forward contracts. The purpose of such transactions is often not to buy or sell the given thing, but to make speculative use of exchange rate risks or to hedge our own position. 

All of this can be enhanced even if we don't even close the deal now, we only buy (or sell) the decision-making right related to the deal: these are option contracts. 

The more complicated (forward and options) transactions are simply called the derivative (or derivative) market. Due to their significant risk, derivative markets are more the scene of professional investors.

Stock exchanges are regulated, centralized and therefore extremely safe markets, but of course there is life outside the stock market. Around the world, almost countless securities or foreign exchange transactions are concluded every day in over-the-counter (OTC) trade. 

The world's largest stock exchange has been the New York Stock Exchange for quite some time, followed by the Nasdaq in the United States, the favorite marketplace for technology companies, and the third step of the imaginary podium is occupied by the Japan Exchange Group.