What is a stock exchange?
A stock exchange is a centralised marketplace where you can buy and sell financial assets. Learn more about what a stock exchange is and find out how to invest in listed assets using our award-winning platform.1
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What is a stock exchange?
A stock exchange is a secondary market where companies and exchange-traded products (ETPs) are publicly listed. It enables buyers and sellers to trade shares of these assets in a highly regulated environment. This means that there are stricter regulations on traders and investors, as well as on the companies listed.
Transactions on a stock exchange are mediated through the centralised location, rather than taking place directly between two parties.
You can get exposure to stocks and ETPs that are listed on a stock exchange through investing or trading by creating an account with a trading provider like us.
Investing in stock exchange assets with us
You can invest in exchange-listed assets such as stocks, exchange-traded funds (ETFs) and investment trusts through a share trading account with us. To become a shareholder, you must commit the full value of your position upfront.2
While you could profit – from possible price appreciation and a passive income through dividends (if they’re offered) – you might incur a loss instead. The total amount you put into your investment is the most that you could lose.
Trading stock exchange assets with us
With us, you would use a contract for difference (CFD) trading account to take a position without owning the asset. Among our speculation-only offerings, you can trade stocks and other share-related assets such as ETFs and indices.
Indices are benchmarks for the performance of certain groupings of stocks, but they aren’t listed on exchanges in their direct form. Instead, they can be listed through certain assets like ETFs that aim to track indices’ price movements. They can also be listed through assets on other exchange types, eg those for listing futures and options.
CFD trading gives you access to leverage for magnified exposure. It enables you to open a bigger position using a relatively smaller deposit, but it also amplifies your profit and loss potential. You can lose more than your initial outlay, making it important for you to manage your risk diligently.
Examples of stock exchanges
| Stock exchange name | Number of listed companies3 |
| Nasdaq | 3,400+ |
| Stock Exchange of Hong Kong (SEHK) | 2,600+ |
| New York Stock Exchange (NYSE) | 2,200+ |
| Shanghai Stock Exchange | 2,200+ |
| Australian Securities Exchange (ASX) | 2,000+ |
| London Stock Exchange (LSE) | 1,800+ |
Other than the number of listed companies, there are various ways of gauging how stock exchanges fare comparatively. These include average daily trading volume, total market capitalisation of companies and size of individual listings.
The traditional and most popular way of companies listing on an exchange is through an initial public offering (IPO). But some companies choose to list in alternative ways such as via direct listings or special acquisition purpose company (SPAC) mergers.
How to trade on a stock exchange
Because stock exchanges set regulations on who may place trades, you have to sign up with a provider like us to take positions on listed assets. You’ll place your orders with your chosen trading provider, who’ll then execute them for you on the exchange.
To start taking positions on assets listed on stock exchanges with us, you can follow these steps:
Fill in an application form and get verified
Open your account and deposit funds
Select your preferred stock and place a deal
When choosing a trading provider, you can compare aspects such as:
- Authorisation by a regulatory body
- Number of markets
- Fees and charges
- Tools and resources
- Customer service
How is a stock exchange different to the stock market?
A stock exchange is a regulated environment that enables buyers and sellers to trade shares. The stock market is an all-encompassing term that represents the transactions of publicly listed companies’ shares that take place between buyers and sellers on stock exchanges.
The two terms are sometimes used interchangeably, but they represent two different things. The stock market functions due to the existence of stock exchanges. Investors can track real-time pricing information from a stock exchange, then choose whether to buy or sell the shares in the stock market.
Stock exchanges are physical venues, but you can access them digitally. The stock market, on the other hand, isn’t a physical place. Transactions performed in the stock market can be conducted through a stock exchange or over the counter (OTC).
Stock exchanges vs OTC
OTC trading refers to the buying and selling of securities that aren’t listed on a formal exchange venue or platform. OTC trades are performed between two parties (the buyer and seller) and are often handled via a dealer network.
The main difference between trading on-exchange and OTC is that there’s mediation in the former – transactions don’t take place directly between two parties. This means that there are stricter regulations imposed on investors and traders, as well as on the companies listed.
The share price of a publicly listed company is determined by market sentiment and investor confidence, which are driven by factors such as:
- Supply and demand: when there’s more demand and less supply, share prices go up; when there’s less demand and more supply, share prices go down
- Company performance: listed companies publish financials quarterly based on various metrics
- Economic conditions: changes in aspects that are related to components of economies, eg international trade dynamics, interest rates and consumer spending
- Management credibility: leadership track record, including strategic vision and execution, and crisis management history
- Industry trends: innovation potential and ability to maintain market share and through research and development capabilities, strategic flexibility, competitive advantages, etc.
- News and global events: internal and external changes that could affect the company’s operations, eg management team changes, regulatory changes, pandemics and geopolitical conflicts
The initial share price – ie when a company goes public – is set based on factors like the expected long-term earning potential. Then, in the secondary market, the abovementioned factors drive price movement.
Pros and cons of stock exchanges
| Pros of trading on stock exchanges | Cons of trading on stock exchanges |
| Equity ownership could generate a profit and earn dividends, if they’re offered | Possibility of losing your capital if the market moves against your position |
| Strong regulatory oversight and protection lessens the risk of counterparty default | Real-time price movements can lead to emotional pressure and impulsive decision-making |
| Liquidity is generally higher, which makes it easier to buy and sell assets | Market risk in cases of broader downturns |
| Company performance transparency through regular publishing of financial results | Large trades can move an asset’s price significantly |
Try these next
Find out how to start investing in stocks and how you can get exposure
Discover why investors choose to become shareholders of listed companies
Explore the key points to consider when looking for an investment platform
1 Best Finance App, Best Multi-Platform Provider and Best Platform for the Active Trader as awarded at the ADVFN International Financial Awards 2024.
2 When investing with us, you’ll do so via our share trading platform using our custodial model. This means that we manage, hold and safeguard securities you choose to buy and sell on your behalf. Via our custodial model, you’ll be able to buy and have a stake in actual assets – for example, shares in an ASX 200-tracking ETF or ASX 200-constituent company. You’ll also be entitled to dividends if any are paid, and granted voting rights if applicable.
3 Statistica, 2024
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