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Financial Dictionary - The stock exchange

The stock exchange

The stock exchange is a market through which financial products are bought and sold via auction: shares, debt, etc. It is named after the Van Der Büerse family from Bruges and is also known as the securities market.

It is managed by traders, or professionals who manage the investments of other people (their customers) in exchange for a commission.

The securities market allows companies to raise finance by issuing and selling shares (or equal parts of their equity), thus making the buyers the shareholders, or part owners, of their company. On a global scale, it certainly plays an extremely important role in each country by influencing the performance of the big companies that operate there. For this reason, the stock exchange is highly regulated, supervised and protected by the state.

When companies issue shares for the first time and sell them to shareholders, it is known as the primary market. If, conversely, an existing shareholder wants to get their money back by selling up, we talk about the secondary market, which is essentially where existing shares are bought and sold. It will ultimately be the price that determines whether those looking to sell their shares can find somebody who wants to buy, and this will depend on the laws of supply and demand: if there are a lot of interested buyers, the seller will be able to ask more for their shares and vice versa. This is basically how we make a profit or a loss, i.e. selling the shares at a higher or lower price than what we paid for them.

And because the shareholders are effectively part owners of the companies due to the shares they hold, they can also share in the profits generated by these companies.

What is a stock exchange order?

An order is an instruction that a shareholder communicates to the stock exchange about how many shares he or she wants to buy or sell, and at what price.

These orders are sent through intermediaries between shareholders and the market.

Physical or virtual space?

Nowadays, the marketplace is no longer so much a physical place as a virtual one. It is a giant computer system that receives buy and sell orders from shareholders, thus creating an interconnected network of computers linked to central one, which issues the information.

However, people still head to the stock exchange "floor" because of how important it is for investors to share information quickly, including strategies, news, or simply rumours.

This allows them to stay a few steps ahead of other investors who do things online.


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