The Importance of the Stock Exchange

Stock exchanges create a reliable marketplace that provides liquidity for investors' stock portfolios.

In the capitalist economic model, companies employ people to make products. Those people earn money to buy products by working for the company. Stock exchanges provide the link that completes the model because they provide a way for the people to use the money they make to buy part of the company

History

In 1792 a group of brokers and company owners formed a financial trading club that evolved into the New York Stock Exchange (NYSE), the world's largest stock exchange. Most exchanges in the world pattern themselves after the NYSE.

Function

Floor traders and specialists on the NYSE transact stock purchases and sales in a negotiated price system that has proved to be a most efficient method of pricing because the trader and the specialist are always on opposite sides of each trade, trying for the best price they can get.

Significance

This reliable active trading system, based on supply and demand pricing for a company's stock, allows liquidity for stockholders and value so the stock can be used as collateral for loans and even be presented in payment for houses, cars and other companies.

Considerations

Companies depend on stock exchanges to provide a trustworthy marketplace for their stock issues, which makes it easier to fund a company by issuing shares. Without this trust factor, nobody would invest their money and companies would not be able to obtain funds via stock sales.

Fun Fact

There are more than 53 regulated stock exchanges throughout the world, on every continent, every developed country and most major cities.

References

• New York Stock Exchange Euronext:History
• SME Capital Markets
• U.S. Securities and Exchange Commission

Resources

• Securities Exchange Act of 1934