What is the stock market? You may have heard of the NASDAQ. What about the NYSE? Have you heard of the CME? All of these are exchanges, or places in investors or traders can purchase or sell securities or equities (such as stocks, bonds, or commodities).
What is it?
The stock market is a place in which buyers, sellers, and brokers interact to buy and sell monetary vehicles such as stocks. However, when we refer to the stock market, we are often referring to U.S.-based stock exchanges, such as the NYSE (New York Stock Exchange) that you may often see on TV, with an expansive trading floor, and many stock brokers running around frantically. The NASDAQ is also a U.S.-based exchange, but interestingly, it is all virtual, and made up of a series of servers that are housed in Carteret, New Jersey. Regardless of the type of exchange, each serves the same purpose – to facilitate the buying and selling of stocks, bonds, and other equities.
The U.S. also has an exchange for financial derivatives and futures (we will cover these later). This exchange is called the CME (Chicago Mercantile Exchange), and is has a data center in Aurora, Illinois similar to the NASDAQ.
There are 60 stock exchanges located across the globe, with each serving a different region. There is a stock exchange for London, one for Hong Kong, and even one for Australia. Within each exchange, countries that are local to the country in which the exchange is based are traded. Thus, U.S.-based companies will be traded in the U.S.-based exchanges.
The History of Stock Markets
The way in which stocks are exchanged in an exchange has changed drastically over the past 400 years with the growing use of technology to facilitate liquidity and volume. The very first stock exchange, the Amsterdam Stock Exchange, as well as other early stock exchanges, were located in bazaars or open-air markets, in which buyers and sellers of stocks would shout across the room to make transactions. The CME (as I discussed earlier) started as an open-air market in which butter and egg futures contracts were traded. In the 1960s, digital marketplaces became a commonplace for stock exchanges.
The purpose of the stock exchange has not changed. Next time you hear someone talk about “the stock market,” remember that it is a place that facilitates the transaction of stocks and other securities.