If you're interested on trading shares, then a quick rundown of the share exchange may just give you glimpse of what it is and what happens in there.
What is a share exchange?
A share exchange, which is more popularly known as a stock exchange or stock market, is an organised market for the purchase and sell of securities such as shares, stocks and bonds. A share exchange serves as the venue for shares trading as well as stocks and bonds.
The share exchange has two important functions: ensure liquidity of securities or shares to encourage people to invest and allocate capital among firms by setting prices that mirror the real investment value of a company's stock.
What happens on the share exchange?
Perhaps when you hear the words stock exchange or share exchange, you will recall snippets of images in some films and some video clips that show what happens on the share exchange floor. You will recall stock brokers on the phones, securities dealers and brokers shouting on the share exchange floor and all the chaotic images.
Amid the noise and frenzy on the share exchange floor, you'll be surprised to learn that in a simple trading on share exchange, there are only three major players on share exchange: the investor (share buyer), the share broker and the securities dealer (share seller). The investor employs a share broker to perform various share broking services. The share broker may execute only the orders specified by the client, provide advisory services, purchase or sell shares on behalf of the client, or combination of services depending on the requirements of the client.
When the share broker receives the order of the client either to buy or sell shares, the broker will then get on the share exchange floor and seek out a securities dealer who may own shares or represents a shareholder. The share broker will then ask the price that the securities dealer is willing to pay or charge for the shares. All these transactions happen on the share exchange floor.
When the share broker and the securities dealer have reached an agreement, the broker may confer with the client about the final price. If the terms are agreeable, the share broker completes the deal. A few days later, the investor or stockholders will receive confirmation of sale or purchase of shares or stocks.
What is the importance of a share exchange?
As a venue for trading, a stock exchange or a share exchange is important to facilitate legitimate trading in securities such as shares, stocks and bonds.