How does the stock exchange work?

Question

How does the stock exchange work?

nomi king 5 months 1 Answer 104 views

Answer ( 1 )

  1. A stock exchange is a place for buyers and sellers to come together to create a market in shares and sometimes other assets too.

    There are several things that make stock exchanges great:

    -Liquidity. If you want to sell a share you want as many people as possible competing to buy it from you. Similarly if you are buying you want lots of competing sellers. As lots of people go to stock exchanges to buy and sell you get the best outcome for buyers and sellers.
    – Known Rules. In a stock exchange the rules are clear (if written in horrible legalese) and are generally applied fairly to all market users.
    – Outside Regulation. Stock Exchanges are generally subject to pretty tough regulations.

    If you are a buyer in a stock exchange you put in an order saying how much you are prepared to pay for a share. If a seller also puts in an order saying they will sell at that price then a bargain is struck and you will pay for and receive your shares, usually 3 days later.

    Most people, including large banks and asset managers, use a broker to buy and sell on their behalf. A broker will (supposedly) be able to get a better price and will also be well placed to deal with the regulation that goes with being a member of an exchange.

    If you want to see how a stock exchange runs and it is legal to access betting exchanges where you are, Betfair runs in exactly the same way as a stock exchange.

    You can access ‘normal’ stock exchanges online, especially via a broker. I’d be quite wary of a non-traditional stock exchange online as I’d be very surprised if they had the liquidity to be able to offer me a good deal, that’s if they weren’t simply a scam

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