We often have to meet on the expanses of the World Wide Web with offers to participate in trading on exchanges, but not all of us know what it is and what they are for. In the article below we will try to understand the concept of the stock exchange and the main mechanisms of its activity.
The definition and history of the formation of the stock exchange
Translated from the Dutch stock exchange is a financial institution that has been continuously operating in the market of homogeneous goods and supervises the transactions of their purchase and sale. According to the definition, the implementation of such agreements have clearly stated time and place.
In turn, the stock exchange is a financial institution that regulates the implementation of transactions for the purchase and sale of securities, and only. The latter include stocks and bonds, both public companies and private capital.
For the first time this concept is mentioned in the Middle Ages, in the 16-17th century, in the Dutch city of Amsterdam. The building in which the world's first exchange was located had a designation - a coat of arms in the form of three purses. By the 18th century, Russian loans began to be used in Amsterdam; by this time, the birth of stock trading in the Russian Federation could be attributed.
Prerequisites for creating stock exchanges
Stock exchange as an institution of the securities market first became popular during the active development and dissemination of trade stocks and bonds. First, since each Issuer and potential shareholders needed specialised specialized place that would be equipped with all the necessary conditions for a successful and comfortable transaction.
Secondly, a professional exchange is a system to which only issuers of reliable securities are allowed, while others are eliminated by a preliminary procedure for assessing quality. And since none of the potential buyers seek to acquire unreliable assets, such institutions are necessary.
And thirdly, the openness of information is characteristic for organized trades, therefore, the fulfillment of obligations is backed by a number of guarantees, which makes exchange trades highly demanded on the stock market.
Stock exchange as a market organizer, its functions
The activities of such financial institutions are governed by a set of rules, so they have a number of clearly defined functions that are not rejected. So, the stock exchange has the following characteristics:
- organizes a permanent activity of the securities market;
- determines asset prices;
- is a kind of informer of the available "goods";
- regulates the purchase and sale of securities;
- organizes the relationship between trade intermediaries;
- regulates free cash flows between participants;
- guarantees execution of transaction conditions, organizes liquidity of the involved assets;
- determines the levels of market segments and the economy as a whole.
However, it is worth noting that the above functions the exchange performs only in the event that hundreds of thousands, if not thousands, of transactions are active and daily.
Participants of the exchange
The stock exchange is an institution that operates on a constant interaction between several participants, and without the presence of at least one of them normal activities of the organization impossible.
No such transaction will be concluded without the presence of a broker who registers the moment of the arrangement, informs potential buyers and fulfills the requests of customers.
The direct procedure for the purchase and sale of securities deals with the dealer, for his own functional definition of existing quotations.
A stockbroker is a specialist with a narrow focus, who controls the flows of definitely established varieties of shares, he also accompanies brokers.
Traders are independent intermediaries who can buy securities, and after reselling at a newly established cost.
Variety of exchange transactions
The stock exchange has several types of transactions. Primarily, they are divided according to the urgency of the organization:
- cash (are executed momentarily);
- urgent (the participants agree on the mandatory deadline, which in the future and adhere to).
The latter, in turn, are ranked according to the following components:
- price (determining the value of the transaction relative to the settlement period - at the time of the conclusion of the transaction or at the time the conditions are met);
- the calculation period (after how many days will the cost be determined);
- mechanism of imprisonment (they are optional, hard and prolonged).
Any of the above transactions is concluded by drawing up a sales contract, which regulates the fulfillment of further obligations on both sides.
Stock Exchange - how to start? Mechanism of trading in securities
There are several methods of trading in securities within the stock exchange. So, for example, the most common is a simple auction, which is divided into the following varieties:
- English (also called a seller's auction) is characterized by the definition of the starting price for the share by the issuer, which increases with each purchase offer.
- Dutch (buyer's auction) - for potential conclusion of the transaction there are several buyers and a wide range of sellers. The deal price is constantly decreasing depending on the offers.
- Closed (a silent auction) – the Issuer announces the implementation of a package of securities, then buy them those wishing to apply for participation in the transaction, at a feasible cost, for which they will be able to buy the assets. Next, the seller identifies potential partner with whom he would work the deal is.