Exchange

The exchange is an open, organized marketplace where stocks, bonds, commodities, derivatives, and other financial instruments are traded at prices, discovered based on the demand and supply principle.

In case of a stock exchange, it provides a platform for building a primary market where government, corporations and public companies can raise capital by channelling savings from investors and institutions through initial public offerings (primary trading), and further accommodate secondary trading where these securities can be resold to other investors to reduce investment risk and maintain liquidity in the system. Exchanges ensure fair and orderly trading, as well as efficient dissemination of price information for all securities, which improves market efficiency. An exchange mitigates the credit risk of traders since exchange (generally exchange’s clearing corporation/house) itself is the counterparty when one trades with it, thereby improving settlements in a trade. Exchanges may be at a physical location or on an electronic platform, which is centralized. Some of the prominent stock exchanges are the Nasdaq, The National Stock Exchange of India (NSE), The New York Stock Exchange (NYSE) etc.  Apart from a stock exchange, there can be different types of exchanges for different markets such as commodity exchange, Foreign exchange, and Derivative exchange. Some exchanges also offer multiple types of asset classes like equities, commodities, forex, etc on a single platform.