What happens in the Stock Exchange and the Markets?

Stock exchange is the place where nearly everything stock-related happens. Nearly, because there has recently been a huge shift towards online investing without the actual use of the physical exchange. It is equally important to know about the different kinds of markets- the primary, the secondary and the OTC (Over the Counter) markets.

The stock exchange is an exchange for stock brokers and traders that trade stocks. The function of the exchange is to ensure fair and orderly trading as well as the dissemination of price information of any stock on the exchange. The exchange gives the companies a platform to sell their stock to the investment public. In order t trade a stock, it must be listed in the exchange. There usually used to be a central location of a firm record keeping but it is gradually becoming less linked to a physical place as markets are now electronic which give the advantage of speed and reduce costs for transactions. The trading on the exchange only happens with members (brokers and dealers basically). When a company decides to go public, they go through an IPO which stands for Initial Public Offering. This process is done on the primary market. The primary market is the market that issues new stocks on the exchange. It is facilitated by ‘underwriters’, which are basically investment banks that set a beginning price for the stock and sells it to the investors. Once the IPO is  done, the actual trading of the stock happens in the secondary markets, which is the stock market. In addition to the primary and  secondary markets, there are also the third and the fourth markets. They aren’t as important because they aren’t considered individual investors. All they do is make market transactions between brokers and dealers as well as institutions through what we call the OTC (Over-The-Counter) market. The OTC market is a decentralized market which means that it doesn’t have a central location. The transactions occur through various communication modes. OTC markets are much less transparent and are subject to fewer regulations.

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