Once you’ve decided you want to buy stocks, you need a broker. You can’t go to the mall and pick up a few shares of stock just like that. The broker takes your order and goes to a stock exchange to make the purchase for you. With online brokers these days, buying stock is really easy.
Exchanges exist for all types of securities. For example, FOREX is the foreign currency exchange where people can trade currency. You can also trade stocks, bonds, and other securities on an exchange.
Stock Exchange
A stock exchange is where stocks, bonds, derivatives, and other securities are traded between stock brokers. There are many exchanges around the world that are used to bring buyers and sellers together.
The purpose of a stock exchange is to give investors a place to exchange stocks. Corporations choose to sell shares of stock in an exchange to raise capital for the company.
Stock Market
The stock market isn’t a physical location. It’s the way buyers and sellers exchange stocks and other investments. The market is how the prices of the stock are determined using supply and demand.
The exchange is where this takes place. For example, the New York Stock Exchange has thousands of companies trading. There is also the NASDAQ and many other exchanges worldwide.
Primary and Secondary Markets
When a company first decides to issue stock, it is sold in the primary market. After that, whenever these shares are bought and sold, they are traded in the secondary market. This all takes place within the stock exchange where the stocks are sold.
OTC – Over the Counter
Any company that is not listed on the stock exchange but that sells stock is considered an OTC stock or over the counter stock. You can still purchase them, just not through a stock exchange. Penny stocks and other high risk stocks are often sold over the counter.
The stock exchange is only one small component of investing. Learn more about stock investing here.