Tuesday, March 19th 2024

What is a Stock Exchange?

Stock exchanges used to be exclusively physical exchanges where people would gather to trade stocks. Orders would be brought from the office to the floor of the exchange and, later, phoned down to the floor of the exchange to be executed. The biggest such exchange was the New York Stock Exchange (NYSE) on Wall Street in New York City. The NYSE and other large physical exchanges such as the London Stock Exchange (LSE) or the American Stock Exchange still exist but two important developments greatly reduced their roles.

1) The arrival of the NASDAQ. The North American Securities Dealers Association Quotation system became popular in the mid-1980s and exploded from there riding a wave of technology and biotech interest, the preeminent of which were listed on the NASDAQ. The NASDAQ significantly changed exchanges for 2 reasons:  1) It was an electronic network of dealers--so the first not to have a physical locations and 2) it is a warehouse system for dealers to trade out of their own inventory (individuals who have the best bid or ask do not have to have their prices shown).

2) The arrival of the internet. Once the internet took serious hold of finance (in the late 1990s), the arrival of electronic exchanges and all-hours trading was not far behind. Although ECNs have not taken a lot of the serious trading from the exchanges, it has forced extended hours trading and a big portion of trades onto instinet (electronic trading between institutions), There is no doubt that ECNs will have a bigger and bigger presence in the future for individual investors.

Some stock exchanges in the USA include:

NASDAQ


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