What Is the Stock Exchange?

When most people in the United States refer to the stock exchange, they mean the New York Stock Exchange (NYSE). However, the NYSE is only one of many stock exchanges around the world, such as the Paris Bourse, and the London and Tokyo stock exchanges. The NYSE is the model other stock exchanges follow, and is the largest in the world (approximately half of all the shares of stock sold in the United States are traded on the NYSE). Today it’s also the center of a transformation occurring among stock exchanges. With the increasing importance of Internet trading, the stock exchange is moving more and more from a physical trading floor to a global network of exchanges linked electronically through cyberspace.

The stock exchange is a place where investors can buy and sell shares of stock in any company that is listed on that exchange.

By providing a centralized market, a stock exchange promotes liquidity (ease of selling stock). This promotes economic growth by giving companies ready access to capital for expansion.

Leading stock exchanges like the NYSE only list companies that meet strict standards. This protects investors from fraud and improves the credibility of listed companies.

Modern stock exchanges date to 1792 when securities trading began in New York City on an organized basis. Just 5 securities were originally traded on what became the NYSE.

To use the stock exchange, investors place orders with a stockbroker to buy or sell. It’s the broker’s responsibility to process the order and find a buyer or seller.

The floor trader physically present on the stock exchange trading floor takes orders from brokers and finds a buyer (or seller) to complete the transaction.

The NYSE is the center of a network of stock exchanges in the United States and Europe called NYSE/Euronext, made possible by electronic fund transfers via the Internet (see Resources).