A lot of investing-related language can be straight-up confusing. This can make investing seem scary and much more complex than it actually is. We’d rather investing be approachable, so we’re breaking down some of the common investing terms you might see or hear.
Say you have shares of stock that you’d like to sell. Maybe you’re buying a house and want the extra money, or you’re going on a big trip, or you had any other expense come up—and you want to sell your shares for what they’re valued at. While you could, hypothetically, sell these shares to your friends, family, acquaintances or anyone else you know, you might not get the best price for them, and also it’s possible that nobody you know will want your shares. Enter: stock exchanges.
What’s a stock exchange?
A stock exchange is just that: a place where shares of stock are exchanged. Either physical or electronic, they’re places where someone who wants to buy a stock is matched up with someone who wants to sell the same stock. And then they trade, aka exchange, aka the buyer buys the stock from the seller. There are two types of markets—a dealer market and an auction market. In a dealer market, market participants aren’t buying from and selling to one another directly but through a dealer. In an auction market, individuals are typically buying and selling between one another.
How does stock exchange work?
Say, for example, you want to buy 5 shares of Totally Made Up Company stock and you place an order through your brokerage account. Your order is then taken to an exchange where “market makers” or specialists have the job of matching your order to someone selling Totally Made Up Company stock.
Once the buyer and seller are matched up, the “trade” is then completed. The Totally Made Up Company stock will transfer to the buyer, the seller will be paid, the two parties will never have to meet, and the stock exchange has completed its role: to match up buyers and sellers.
Are there different stock exchanges?
Yep. You’ve probably heard of at least a couple: the New York Stock Exchange and NASDAQ.
The New York Stock Exchange is more commonly referred to as Wall Street, because the physical location is, well, on Wall Street (11 Wall Street, New York City, NY). NYSE is an auction market.
The NASDAQ is an electronic-based stock exchange. This means that rather than having a physical location where people can buy and sell their stock, all of the trading on NASDAQ happens digitally. The NASDAQ is a dealer market.
While these are the most commonly known in the US, they’re also just the tip of the iceberg. There are more stock exchanges around the world. You can see a list of all of them here.