Stock Exchange

1. Introduction to Stock Exchange

Everything
about Stock 2. Types of Stock Exchanges
Exchange
3. How the Stock Market Works

4. Types of Securities Traded

Agenda
5. Investors in the Stock Market

6. Regulations and Oversight

Introduction to Stock
Exchange

The stock exchange serves as a

marketplace where securities such as
stocks and bonds are traded. It is a
crucial component of the global
economy, providing companies with
access to capital and offering investors
a platform for trading those securities.
Understanding the stock exchange is
essential for anyone interested in
finance, investing, or economics.
Definition

1. A stock exchange is an organized

marketplace where stocks, bonds, and other
securities are bought and sold. It provides a
platform for companies to raise funds and for
investors to manage their portfolios.
2. Stock exchanges ensure that transactions
occur in a fair, orderly, and efficient manner
by establishing rules and standards that
participants must follow.

3. The most well-known stock exchanges

include the New York Stock Exchange (NYSE)
and the Nasdaq, which have different listing
requirements and trading styles.
Purpose

1. The primary purpose of a stock exchange is

to facilitate capital raising by companies
looking to grow and expand their business
operations.

2. Additionally, stock exchanges provide a

platform for investors to buy and sell
securities, enabling them to manage their
investment portfolios effectively.

3. By enabling price discovery through

transactions, stock exchanges also help
establish the value of companies based on
market perceptions.
Types of Stock
Exchanges

Stock exchanges can be categorized

into different types based on their
trading mechanisms and the nature of
the transactions. Understanding these
categories helps investors choose the
right venue for their trading activities.
Below are the main types of stock
exchanges, including traditional
physical exchanges and innovative
electronic platforms.
Physical Exchanges

1. Physical exchanges, such as the New York

Stock Exchange (NYSE), involve a physical
location where traders meet to conduct trades
face-to-face.

2. Transactions in physical exchanges are

often facilitated through an auction system,
where buyers and sellers interact directly.

3. These exchanges are known for their

vibrant trading floors and can be quite chaotic,
reflecting the fast-paced nature of stock
trading.
Electronic Exchanges

1. Electronic exchanges, such as the Nasdaq,

operate entirely online, allowing traders to
execute transactions remotely without
needing to be in a physical location.

2. These platforms utilize advanced

technology to facilitate high-frequency
trading, increasing the speed and efficiency of
transactions.

3. Electronic exchanges have become

increasingly popular due to their low costs,
accessibility, and improved transparency.
Over-the-Counter (OTC)

1. The Over-the-Counter (OTC) market refers

to trading securities directly between parties
without a formal exchange platform.

2. OTC trading is often used for smaller

companies or those that do not meet the
requirements for listing on organized
exchanges.

3. While it offers flexibility, OTC trading can

involve higher risks due to less regulatory
oversight and transparency compared to
formal exchanges.
How the Stock Market
Works

The stock market operates through a

complex system where investors buy
and sell shares of companies. Key
concepts include bidding and asking
prices, types of orders, and the forces
of supply and demand that influence
stock prices. Understanding these
mechanisms is essential for effective
trading and investing.
Bidding and Asking

1. In stock trading, the bid price represents

the highest price a buyer is willing to pay for a
stock, while the ask price is the lowest price a
seller will accept.

2. The difference between these two prices is

known as the 'spread', which can indicate the
liquidity of a stock.

3. Understanding bidding and asking prices

helps investors make informed decisions on
when to buy or sell their shares.
Market Orders vs. Limit
Orders

1. Market orders are executed immediately at

the best available price, which is essential
when speed is a priority.

2. In contrast, limit orders allow investors to

set the price they are willing to pay or receive,
providing more control but possibly resulting
in delayed execution.

3. Choosing between these order types

depends on an investor's risk tolerance and
trading strategy.
Stock Price
Determination

1. Stock prices are primarily determined by

supply and demand in the market; when
demand exceeds supply, prices rise, and vice
versa.

2. Other factors influencing stock prices

include company performance, economic
indicators, and market sentiment.

3. Investors often analyze trends and news to

make predictions about price movements and
adjust their strategies accordingly.
Types of Securities
Traded

Various types of securities are traded

on stock exchanges, each serving
different investment purposes. These
include stocks, bonds, and exchange-
traded funds (ETFs), all of which have
distinct characteristics and risk
profiles. Familiarity with these
instruments is vital for any investor
looking to diversify their portfolio and
optimize returns.
Stocks

1. Stocks represent ownership in a company,

allowing shareholders to benefit from the
company's growth through capital
appreciation and dividends.

2. There are two main types of stocks:

common stocks, which give voting rights, and
preferred stocks, which provide fixed
dividends.

3. Investing in stocks is a popular method for

long-term wealth accumulation, but it comes
with inherent risks.
Bonds

1. Bonds are debt instruments issued by

corporations or governments to raise capital,
providing investors with fixed interest
payments over time.

2. Unlike stocks, owning a bond does not

provide ownership in a company, making them
a safer investment with lower potential
returns.

3. Bonds are often viewed as a way to

diversify portfolios and reduce overall risk.
Exchange-Traded Funds
(ETFs)

1. Exchange-Traded Funds (ETFs) are

investment funds that are traded on stock
exchanges, similar to individual stocks.

2. ETFs typically track an index, commodity,

or a basket of assets, allowing for
diversification with lower fees compared to
mutual funds.

3. They offer investors the flexibility of

trading throughout the day while providing
exposure to various markets or sectors.
Investors in the Stock
Market

The stock market is not just for

seasoned professionals; it is a diverse
ecosystem comprising various types of
investors. Each type has its own
strategies, risk tolerances, and
investment objectives. Understanding
these different participants is crucial
for anyone looking to engage in stock
trading.
Retail Investors

1. Retail investors are individual consumers

who buy and sell securities for personal
accounts, often through brokerage firms.

2. They typically trade smaller amounts of

capital compared to institutional investors and
may rely heavily on online platforms for
transactions.

3. Retail investors often participate in the

market with long-term investment strategies
or through retirement accounts.
Institutional Investors

1. Institutional investors include organizations

such as mutual funds, pension funds, and
hedge funds that manage large portfolios of
securities.

2. They have significant resources and

expertise, allowing them to influence market
trends and company valuations.

3. Institutional investors often engage in more

sophisticated trading strategies and have
access to exclusive investment opportunities.
Market Makers

1. Market makers are entities or individuals

that provide liquidity in the stock market by
being ready to buy or sell at any time,
ensuring smoother transactions.

2. They profit from the difference between

the bid and ask prices, taking on the risk of
holding inventory.

3. Market makers play a crucial role in

maintaining price stability and execution
efficiency in the stock exchange.
Regulations and
Oversight

Regulatory bodies oversee stock

exchanges to ensure fairness,
transparency, and integrity in the
trading process. These regulations are
crucial for protecting investors and
maintaining public confidence in the
financial markets. Understanding the
role of these regulatory organizations
helps investors navigate the
complexities of stock trading.
Securities and
Exchange Commission
(SEC)
1. The Securities and Exchange Commission
(SEC) is a U.S. government agency responsible
for enforcing federal securities laws and
regulating the securities industry.

2. The SEC's mission is to protect investors,

maintain fair, orderly, and efficient markets,
and facilitate capital formation.

3. They require public companies to disclose

financial and other information, helping
investors make informed decisions.
Financial Industry
Regulatory Authority
(FINRA)
1. Financial Industry Regulatory Authority
(FINRA) is a non-governmental organization
that regulates member brokerage firms and
exchange markets in the U.S.

2. FINRA's role includes overseeing the

activities of brokerage firms, conducting
market surveillance, and educating investors
on their rights.

3. Through its efforts, FINRA aims to protect

investors and ensure the market operates
fairly and transparently.
Conclusion
1. The stock exchange plays a vital
role in the global economy by
facilitating capital formation and
investment opportunities.

Stock Exchange 2. Understanding its operations,

types, and regulations empowers
investors to make informed decisions.

3. As the market continues to evolve,

staying informed about stock
exchanges will remain crucial for
successful investing.