Till now we have discussed assets and liabilities. But where are these assets bought and sold? Who buys these assets? We will be discussing the markets in which these assets are changed, that is the exchanges where these are traded.
So what are these markets?
A market is a place where you can buy and sell things. Markets for assets are places where you can buy and sell a particular asset class. if you don’t know about asset classes you can read about it here.
Pic Credit – thecollearn.com
Equity/Stock Exchange
This is the most commonly known and simplest among all the exchanges I have found. Equity/ Stock exchanges facilitate trading financial securities such as equities and ETFs. These exchanges are pivotal in global finance, providing platforms for companies to raise capital and for investors to trade securities.
The Equity exchange can further be divided into the following types:
Regional Exchanges: These operate within a specific geographic area. These are created to serve local companies and investors. Examples of regional exchanges could be the Bombay Stock Exchange located in India and the Shenzhen Stock Exchange in China.
National Exchanges: These serve an entire country and have a broader reach. They list companies from various industries and regions within the country. Examples of National exchanges are the New York Stock Exchange in the US and the Tokyo Stock Exchange in Japan.
International Exchanges: These facilitate trading across multiple countries. They allow investors to buy and sell securities from different nations. Examples include the London Stock Exchange (LSE) and the Hong Kong Stock Exchange (HKEX).
So now one question that might arise in your mind how big are these exchanges?
Largest stock exchanges in the world by market capitalization as of 2024:
Market capitalization is a significant indicator of the size and influence of an exchange, reflecting the total value of all listed companies’ shares. So to give you an idea of how big these exchanges are, here are the top 10 exchanges in the world based on market capitalization.
- NYSE – market capitalization of $28 Trillion
- Nasdaq – market capitalization of $21.7 Trillion
- Shanghai Stock Exchange – market capitalization of $6.7 Trillion
- Euronext – market capitalization of $7.2 Trillion
- Japan Exchange Group – market capitalization of $6.46 Trillion
- Shenzhen Stock Exchange – market capitalization of $6.22 Trillion
- National Stock Exchange – market capitalization of $4.5 Trillion
- Bombay Stock Exchange – market capitalization of $5 Trillion
- Hong Kong Stock Exchange – market capitalization of $3.98 Trillion
- Toronto Stock Exchange – market capitalization of $3.26 Trillion
Now there are derivatives associated with the equities too which are traded on these exchanges which we are going to discuss in one of the upcoming posts.
What is the importance of Stock Exchanges in the economy?
The Stock market’s performance is closely related to the economy’s performance. There are certain advantages that the stock exchanges bring to the economy as listed below.
Capital raising: They enable companies to raise capital by issuing shares to the public. This infusion of funds helps businesses expand, innovate, and hire more employees contributing to economic growth
Liquidity: Providing a platform for buying and selling shares, stock exchanges offer liquidity, making it easier for investors to convert their investments into cash.
Economic indicators: Stock market trends can act as indicators of a country’s economic health. Rising stock prices often signal investor confidence and economic growth, while falling prices may indicate economic downturns.
Wealth effect: An increase in stock market values can lead to a wealth effect, where individuals feel more financially secure and are likely to spend more, boosting consumption and economic activity.
Now if you are wondering if these markets are safe in terms of fraud happening, let me tell you that nothing is completely safe. But to reduce fraudulent activities in these markets there are regulatory boards. For example, Securities and Exchange Board of India is the regulatory body for Indian equity markets.
Currency Exchange
These exchanges facilitate the trade of currencies in pairs. This is a more complex exchange than the Equity/Stock exchange as it directly includes foreign currencies. These markets lack a central physical location and instead operate electronically over the counter (OTC) via connected trading terminals and computer networks.
Foreign Exchange or Forex as people call it, is a global market for exchanging foreign currencies. It’s the largest market in the world, with trades affecting everything from the price of imported clothing to your vacation expenses. It’s a dynamic market where geopolitical events, interest rate changes, and economic data impact currency values.
The participants in this market include retail traders, investors, financial institutions, and central banks. Currencies are traded worldwide across major financial centers in almost every time zone. The market is open 24 hours.
Currencies trade against each other in pairs. USD/EUR represents USD against EUR. The exchange rate determines how much one currency is worth in terms of another. Traders speculate on price movements, aiming to profit by buying one currency while simultaneously selling another.
So what’s the use of Forex?
Forex allows diversification, speculation, and risk management for both large institutions and traders. It helps to manage risk by hedging.
Commodity Exchange
These exchanges facilitate the trade of commodities. Facilitate the buying and selling of physical goods, such as agricultural products and raw materials.
Commodities include wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies, oil, and metals.
Apart from trading commodities, these exchanges offer derivatives related to these commodities. These derivatives include forwards, futures, options, and spot trades.
Some of the Major commodity exchanges around the world include:
- Chicago Mercantile Exchange (CME) located in Chicago, USA, is one of the largest commodity exchanges globally.
- Tokyo Commodity Exchange (TOCOM), based in Tokyo, Japan, it focuses on various commodities.
- London Metal Exchange (LME) is situated in London, it specializes in metal trading.
- Multi Commodity Exchange (MCX) in India, MCX handles various commodities.
So this is all for this post. Hope you got to learn something new. Don’t forget to follow my Facebook and Instagram pages for regular updates. See you all in the next post. Till then keep learning!