The stock exchange is key financial institution in any free-market economy. It lets individual investors and investment firms exchange capital and move resources to places where there are most needed. Stock exchanges can also serve as a savings tool.
Economies of Scale
One of the advantages of the stock exchange is that is enjoys economies of scale because so much money passes through it. This helps to keep costs low, making it less expensive to buy and sell stocks.
A stock exchange can use millions of transactions to spread fixed costs of setting up and maintaining orderly and secure trading, whether it's done on the computer or the exchange floor. The bigger a stock exchange is, the cheaper it is to trade an individual stock on it.
In the U.S., the two biggest exchanges are the New York Stock Exchange, or the NYSE, and the Nasdaq Stock Market, usually referred to as the Nasdaq.
Stock exchanges require listed companies to meet strict regulatory requirements with regard to financial reporting, corporate governance and disclosure. In the U.S., the regulatory agency is the Securities and Exchange Commission. Investors get access to all relevant information about the listed companies so they can make informed decisions about whether to buy or sell shares.
A stock exchange provides a reliable and secure clearing mechanism. You can be sure that the stocks you buy will be delivered to you, no matter what happens to the party you bought them from.