What is an Exchange?

[Jeff]

Explain to me what an exchange is.

[Faraz]

An exchange can be described as a market place in which securities, commodities, derivatives, and other financial elements are exchanged or traded. 

Exchange is therefore credited with the role of ensuring fair and orderly trading and the reliable communication and relay of information about the prices for the securities trading on the respective exchange. 

 

Previously, an exchange was a physical location where traders converge and transact businesses but the advent of technology is fast replacing physical exchange locations with online-based electronic exchange platforms.

 

Some of the most popular exchanges include the New York Stock Exchange (NYSE), NASDAQ, the London Stock exchange 9LSE) and the Tokyo Stock Exchange (TSE)

The most significant benefit created by having a stock exchange is the ease of access to top capital. Companies seeking to scale up operations raise money by selling their shares to investors through the exchange market.

 

Companies who wish to raise capital through an exchange get to do so through the first sale of a formerly privately owned company to the public through an initial public offering (IPO).

 

Additionally, companies listed on a major exchange become increasingly visible to the public. This exposure enables these companies to attract investors, potential and talented employees who are skilled and able to carry forward the mission and vision of the company by performing their duties exemplary.

An exchange creates an environment where investors get to buy the company’s shares but they do not have control over the company. Their rights have a restriction. Companies listed on an exchange.

 

On the other hand, companies that are not listed in exchange will often rely on venture capitalists for investment capital. The downside to this approach is the inherent loss of organizational control. Companies that have a vision of expansion and long-term success are therefore encouraged to register with reliable and known exchanges.