Exchanges are a place where buyers and sellers can trade assets such as shares, currencies and commodities in an organized and fair way.
They ensure that both parties receive up-to-date information on how much these assets are worth. Exchanges are also important for businesses and governments, as they deliver a much-needed platform where shares and bonds can be sold to members of the public who are willing to invest.
Whenever you think of an exchange, you’ll probably think about the financial centers of the world: New York, London and Tokyo. As well as being some of the better-known exchanges out there, they are often home to the planet’s biggest companies. That said, most countries do have their own platforms.
How times have changed
Back in the olden days, most deals were executed on trading floors – bustling spaces where transactions were organized face to face. Images of men in elaborate jackets wildly gesticulating to one another may spring to mind, or Wolf of Wall Street. Although many exchanges are still anchored to a physical location, the boom of electronic trading now dominates the marketplace – enabling traders to react to new information instantly and devise new strategies based on complicated algorithms.
Certain traditions remain in place. Most international exchanges only trade during business hours on weekdays – a stark contrast to the forex or cryptocurrency markets, some of which are open 24 hours a day.
Exchanges are crucial for companies that are hoping to raise money and elevate their profile, but many have strict rules on who is eligible to join their platform. Usually, they will have to submit regular reports of their current financial standing, as well as reach a certain valuation.
Platforms also exist for the buying and selling of assets beyond stocks and shares. Commodity exchanges are normally geared towards the business community – enabling parties to trade anything from gold and coffee to cattle and oil.