What is an exchange: what is traded on it, how to get on it and start trading

Any trading platforms are special programs created for conducting trading operations (buying and selling currencies, shares or futures) on the market using a computer, conducting analysis, using charts and other tools for managing accounts.
Therefore, it is so important to choose the right platform: the capabilities of the system are directly interconnected with the capabilities of the user himself, depending on his own requirements and preferences.

How the exchange works

In modern conditions, by default I will assume that this is an electronic exchange. I will leave the old and exotic options for markets with a paper form of conducting transactions on the floor outside the scope of the article.

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Three main market components that interact with each other online:

• trader (client);
• broker;
• the exchange itself with a trading system.

Schematically it looks like this.

A trader’s order to buy or sell through a trading terminal on a computer or mobile device goes to the broker’s trading server (in the diagram - Securities Trader, securities). The broker has its own direct connection to the exchange and its system. In this case, it is possible to connect the client directly to the exchange gateways, bypassing the broker’s servers.

The trader's order is processed by the broker's server for compliance with a number of conditions and sent through the exchange gateway to the computing power of the exchange's trading system. Where the transaction itself takes place automatically from the selection of the best applications submitted by sellers and buyers.

This process involves a clearing house, which consolidates stock exchange arithmetic, and a depository for accounting for asset owners. This is what the next chapter is about.

Clearing House

Thanks to the Internet, traders from all over the world can make thousands of market trades online per second. Rights to assets are continuously transferred from one participant to another. At one point in time, the same product can be bought and sold by one participant.

As with speculative operations in high-frequency trading (HFT trading). In this case, orders for transactions are generated by a special program in accordance with the algorithm contained in it. There are thousands and tens of thousands of completed trading operations that require accounting, summing up the mathematics of profits and losses for each trading participant.

To do this, trading on the market is stopped for a period of time - clearing, during which all calculations take place. Each participant (trader) is given the final balance on the trading account at the end of the trading session before clearing begins.

Let me look at how this happens on the Moscow Exchange. Clearing settlements are carried out by a specialized company. This is a 100% subsidiary of the MICEX.

Trading schedule with clearing session times from the exchange website.

Clearing objects are professional market participants who have places on the exchange. So, in the stock section there are 405 of them, in the forts section - 128. And then brokers transmit data in the trading terminal on losses and profits to each of their clients.

Depository

Since its inception, the action has been printed on paper. This is what they looked like.

With the advent of electronic trading, trading volumes and the volume of speculative transactions began to increase, when the owner of shares in the market can change more than once during a trading session, days, or weeks. Printing such a wave of papers every time is a technically and economically senseless undertaking.

Separate centers for storing data on nominal shareholders arose, which kept records of owners and registers of shareholders.

Since data began to be stored electronically, companies that conduct depository activities are subject to increased requirements for the reliability of data storage. Each client who enters into a brokerage service agreement also signs an agreement with the depository for storing information about the securities he owns.

In Russia, the main structure is the central depository, which keeps records of all participants in the Russian stock market. This is a non-bank credit organization JSC National Settlement Depository.

Broker on the stock exchange

This is a professional participant in the securities market. Professional when trading in financial markets is the main activity. Different names are used in countries, but the principle is the same - a supervisory authority acts on behalf of the state, to which the rights to regulate this activity are delegated.

In Russia this is the Central Bank (until 2013, the Federal Service for Financial Markets), in the USA - the SEC (The United States Securities and Exchange Commission), in the UK - the FCA (Financial Conduct Authority), etc.

The Russian Central Bank licenses and issues permits for professional participants; information is publicly available on the bank’s website. Without a license, the company will not be able to have a place on Russian stock exchanges, in particular on the Moscow stock exchange. And will not be able to provide services to third parties - clients. Otherwise it is a violation of the law.

Exchange participants

Market participants are the brokers' end clients, the depository, and the brokers themselves.

Control

The exchange platform in any country is monitored. The standard scheme is external and internal control. External, as a rule, behind the regulatory authorities. Internal - for the company’s own services and shareholders, if the exchange has a joint-stock form of ownership.

At the MICEX, internal control over the market is carried out by its own service, audit (internal) - by the audit commission. According to the Charter, without the conclusion of the commission, the balance sheet cannot be adopted by the meeting of shareholders.

eTXT Content Exchange

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You can find a copywriter’s website on the Internet and offer him cooperation. However, this option can hardly be called successful, since you are unlikely to be able to verify for certain the veracity of the laudatory reviews and the authorship of the articles displayed in the portfolio.

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Advantages and disadvantages

Advantages of trading on the stock exchange for individuals when speculating or investing:

1. An opportunity to earn money without leaving home. You enter into an agreement with a broker, install a trading program on your computer (or without installation at all), deposit money into your account - and dozens of financial market instruments are available to you (stocks, bonds, futures, options, currencies, etc.).
2. Opportunity to trade both day and night - trading on many instruments takes place almost around the clock with short breaks. Weekends: Saturday, Sunday, national holidays.
3. Available instruments of different classes - securities, derivatives on commodity positions (oil, metals, gold, currency pairs, etc.).
4. Passive investing. Formation and maintenance of a long-term securities portfolio independently or with the help of professionals - investment companies. Requires some effort at the initial stage when starting to form a portfolio and a minimum of time in the future. The rest happens without your effort - the securities in the portfolio either grow or fall. Of course, it's better that they grow.
5. You can make money on shares not only from rising prices, but also from dividends.

There is only one drawback to trading on the stock exchange. You can not only make money on it, but also lose your money. As in any business, you bear all risks yourself. If you bought shares of company N, and then it went bankrupt, the share price went to zero - no one will compensate you for your losses. The investment turned out to be unprofitable.

Objectives of the stock exchange

The main objectives of the stock exchange are:

• creating conditions for the existence of a permanent securities market
• setting prices for financial instruments
• ensuring the transfer of ownership rights
• ensuring that all conditions of the transaction are met

The stock exchange offers great opportunities for obtaining a stable income from trading securities. In order to succeed with its help, you need to start small and undergo training with the help of the right brokerage company. The stock exchange has its own functions and tasks, rules for conducting transactions. And if you choose the optimal strategies for trading financial instruments, you can soon achieve excellent results.

Author Ganesa K.

A professional investor with 5 years of experience working with various financial instruments, runs his own blog and advises investors. Own effective methods and information support for investments.

Classification and types of exchanges

I will consider the classification of exchanges by type of assets traded on them, organization, and form of participation.

By type of product offered

Below are the main forms of exchanges for the assets that are traded on them. In addition, there are separate highly specialized sites, such as futures and options exchanges (CBOT in Chicago) and EUREX in Germany.

Stock

Markets for trading securities. Some exchanges include trading in derivatives and currencies as internal divisions. Stock exchanges are the oldest form of organization. Available all over the world - in New York, London, Hong Kong, Sydney, Tokyo, Moscow, etc.

Commodity

The essence of markets is trading of commodity items. The main form of transactions is futures contracts with or without delivery. In the latter case - speculative operations. The Chicago Mercantile Exchange (CME) is the largest in the world. Energy resources, metals, agricultural products—these commodities are on the quotation list.

Foreign exchange

In their pure form, exchanges as trading platforms for currency exchange are largely a thing of the past. World money is exchanged at the interbank level, on forex, by direct contacts. Currency CFD contracts are provided mainly by European and Asian platforms.

The Moscow Interbank Currency Exchange started in the very early 1990s for currency exchange and bond trading. Trading in shares began later. The modern name is the Moscow Exchange, which has a foreign exchange section.

According to the principle of organization

Initially, exchanges had basically a mutual form of ownership - only those members of the community who traded on it had shares. With development, the organization of exchanges has become more complex.

Based on the principle of forming start-up capital and the status of the main owner, the exchange as a legal entity can have public, private, or mixed forms of ownership.

State

The main control of markets lies with the state. An example is the Tashkent Stock Exchange, in which the state has a controlling stake. In China there are Shenzhen and Shanghai stock exchanges.

Private

The most popular type, common in the USA and Europe. Suffice it to say, the largest stock exchange conglomerate Intercontinental Exchange, which owns the New York Stock Exchange, has a private form of ownership.

Mixed

A common type of organization of private and public partnerships, when, along with state participation, 100% private investors or joint stock companies of mixed ownership participate in the property and activities of the exchange.

A close example is the Moscow Exchange. It has an IPO and is a public company. But the role of the state remains in making decisions of PJSCs through stakes, including the Bank of Russia, Sberbank, VEB.

According to participants

Exchanges as trading platforms by category of access to trading.

Open

On an open exchange, access is available to all participants who want to make transactions - sell or buy. This form is a thing of the past; today the world exchange market is a market of professional participants.

Closed

The main type of exchanges today is in the category of participation and access to trading. The exchange, as the organizer of trading, enters into an agreement with a professional market participant who pays for a permanent place for trading. The end client does not have direct access to the exchange; to trade on it, he needs an intermediary - a broker.

By role and place in international trade

The most significant world exchanges are the New York Stock Exchange, the CME as the largest derivatives platform, including oil, the London and Shanghai Stock Exchanges, and the Tokyo Stock Exchange.

Exotic

Small exchanges with a limited list of participants. An example is the South Pacific Stock Exchange (SPSE). Based in Suva, Fiji. There are only three brokers on the market. Or the Laos Exchange (LSX), which trades shares of 10 local companies.

History of the stock exchange

Today it is difficult to say when the stock market or exchange began to emerge. In the earliest times, during the time of merchants, traders gathered on one site in order to find buyers or obtain certain types of information. At such meetings, they learned the most current prices for certain goods in order to subsequently provide them to consumers at the optimal price. Similar meetings were recorded back in the days of Ancient Rome.

The year 1653 is considered to be a turning point in the history of the stock exchange. The initiative was taken by the Marseille merchants, who began to demand the creation of a specific place where they could gather and resolve their commercial affairs. They referred to the inconvenience associated with holding meetings of merchants on the street.

Over time, a securities market began to form. Merchants received their own space for conducting commercial affairs. They realized that in order to set prices for their goods, they did not have to bring them with them, which was extremely inconvenient. They came to the conclusion that in order to sell their goods, they can agree on their value even without their physical presence on the exchange. And all questions about their provision and sales features can be agreed upon on paper.

In the 17th century, a stock exchange in the usual sense of this institution had already begun to form in Amsterdam. This concept reached Russia in the 18th century.

The history of the stock exchange starts around the 2nd century BC. Throughout its existence, it has shown that it plays one of the main roles in setting prices for various types of raw materials and goods.

List of largest exchanges

Below is a list of world exchanges, the largest in the world and in Russia.

World

The main centers of gravity in terms of the location of global financial flows are in the USA, Western Europe, Japan and China. The largest exchange operator in the world is Intercontinental Exchange (ICE). Headquarters in Atlanta, USA. He owns 2 exchanges from the top ten - NYSE and Euronext. The world leader in the turnover of futures contracts.

The total capitalization of these two sites alone is almost $28 trillion. Fantastic amount. Taking into account the fact that the capitalization of the world stock market today is about 100 trillion. For comparison, the budget of the Russian Federation for 2022 is 18 trillion. rubles or 285 billion dollars.

TOP 10 largest world stock exchanges

List of the world's largest stock exchanges as of March 1, 2019. Source - masterforex-v.org.

The Moscow Exchange is in 22nd place in this list of markets.

Russia

The main Russian exchange trading platform is the Moscow Exchange. Previously it was called MICEX (Moscow Interbank Currency Exchange). At the beginning of its activity in 1992, it conducted currency trading, hence the name. In 2011, the MICEX merged with another exchange headquartered in Moscow - RTS.

The new structure was named MICEX-RTS. Later - Moscow Exchange. Two years after the merger, the exchange held an IPO, with more than half of the shares in free circulation. Institutional shareholders: Central Bank of the Russian Federation, Sberbank, Vnesheconombank,

European Bank for Reconstruction and Development. Based on the results of the 2nd quarter of this year, the capitalization of the Moscow Exchange is 216 billion rubles.

The screenshot shows the change in this value over the year. Source: smart-lab.ru.

Two companies whose market capitalization in September 2022 is >5 trillion. r., - Gazprom and Sberbank. The capitalization of all companies on the Moscow Exchange exceeds 30 trillion. R.

The second Russian stock exchange is St. Petersburg. The value of this platform is that shares, bonds, and depositary receipts of foreign companies, primarily American ones, are traded on it.

Risks in financial markets

In its latest financial stability review report for the last quarter of 2022 - the first quarter of 2022, the Bank of Russia notes the macro risks that are emerging in the global economy and affecting global financial markets.

Some of them, according to the Central Bank of the Russian Federation:

1. Slowdown in global GDP growth according to IMF estimates. From 3.8% in 2017 to 3.6% a year later. At the same time, the forecast for 2022 for growth rates, which have decreased in China, has been worsened, the expectation for the current year is 6.3%, 2022 - 6.6%.
2. Uncertainty in the policies of central banks in the world's central economies. The discrepancy in the assessment of the situation between the financial markets and the US Federal Reserve's intentions to further increase interest rates.
3. Increasing role of geopolitical risks. First of all, the Trump administration’s trade war that they declared on China.

After the report was released, the crisis in Argentina was added. Apart from macro quantities, anything in the world is a reason for movement in the markets. Financial markets react instantly.

The attack on Saudi Arabian refineries on Saturday, September 14, 2022, increased oil prices in the Asian session from the market opening on Monday, September 16, by 15%. This is an example of the reaction of world markets. An indicator of investor fear, gold, is up 18% this year (as of 9/24/19). The money is transferred to protective assets.

Any news can move quotes on the market. An increase in dividend payments is a reason to buy shares. Moreover, when the market did not expect it.

What happened to Gazprom shares this year. In May, there was a price jump on news of an increase in dividends, the shares went above the level of 200 rubles, and on purchases they reached 250 rubles. These are the levels of 2011, when Gazprom's securities were drawing a downward wave after the 2008 crisis.

How to access stock trading

In simple words, at the first stage, decide for yourself what it is for you - active speculation or long-term investment.

Depending on this, determine a list of reliable brokers that provide access to a specific trading platform, analyze the tariff plans they offer. Having made your choice, enter into a client agreement with the broker, which will open a trading account. Install the trading program, transfer money to the trading account.

Best brokers

When choosing a broker, immediately check the license of a professional participant in the securities market. The regulatory body in Russia is the Central Bank. On the Central Bank website in the section “Financial markets/Information about participants and instruments of the financial market” information about brokers who have been issued licenses is indicated.

Screenshot of the page.

From the list of brokers for trading on Russian and world markets, I recommend the following companies.

Caution about BO and Forex

Before the dollar was pegged to gold in 1971, exchange rate fluctuations were minimal—within 1%. The market was on a gold standard.

After the cancellation, the range of fluctuations increased significantly. Market prerequisites arose for the exchange of currencies at a free rate, which began to be determined not only by the peg to gold, but also by supply and demand. As a result, in the late 1970s, a market for free exchange of currencies at the international level - forex - emerged.

Until now, this is the field of activity of big players - central banks, large commercial banks, investment structures. Turnover this year is more than $6 trillion. The usual transaction volume in this market is millions of dollars.

It is a priori inaccessible to the average person - orders from Forex dealers may not even be displayed on the real market. This area does not fall under ordinary legislation on the securities market, since it is not one, and we cannot talk about legality.

On the other hand, laws regulating Forex at the level of services to small users still poorly regulate this niche not only in Russia, but also in other countries. Unscrupulous dealers take advantage of this.

Expert opinion

Vladimir Silchenko

Private investor, stock market expert and author of the Capitalist blog

Ask a Question

A type of service popular in Forex is binary options (BO). If we put aside the verbal fluff, this is a normal bet in the game. Like in a casino or slot machine. There are several types of BO - based on the movement vector (top, bottom), reaching a certain level before a specific date. If you guess correctly, you win, if not, your bet is lost. The word “options” is misleading to many. In fact, this has nothing to do with standard stock options.

What to remember

• The stock exchange trades securities issued by issuers.
• The activities of the exchange in Russia are under strict control of the Central Bank.
• Carrying out transactions on the stock exchange is easier than it seems, but it requires basic knowledge.
• To trade on the stock exchange, you need a reliable broker or trustee.
• Remember that returns in the stock market are not guaranteed, so you need to be smart about your investments.
• You can always contact a financial advisor for advice.
• #Bonds
• #Tips for beginners
• #Stock
• #Broker account
• #Financial Advisor
• #Beginners

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How to make money on the stock exchange: investing vs trading

According to the results of various studies conducted on world stock exchanges, more than 70% of day traders (intraday trading) lose their money within six months.

This is active trading, speculation in the market. At the same time, look at the chart of the MICEX index or S&P500 for 5-10 years. An absolute minority is able to produce better results over such a period than the indices. If you are confident that you will trade as well as Livermore, then trade. Otherwise, it is better to learn the art of investing. There are fewer nerves, and the result is usually better.

How to trade on the stock exchange

You opened an account with a broker, funded it and installed a trading program. The most popular terminal in Russia is Quik, developed by ARQA Technologies from Novosibirsk. The main settings of version 7 can be seen in this video.

Where to begin? I will try to give recommendations on the sequence of steps for a trader who starts trading on the Moscow Exchange:

1. Select a few instruments for short to medium term market trading from a list of blue chip stocks. They are liquid, they trade well, technical analysis works well for them, and there is a constant news background. These are Gazprom, Sberbank, Rosneft, Lukoil, Norilsk Nickel. In the future, you can begin to build a long-term portfolio with these same securities.
2. Don't take on leverage until you get a feel for the market. This is at least six months. The first year is a time to study and get your bearings. Money flows from one market participant to another. Your task in the initial period is to reduce losses to a minimum. If you were able to earn money, very good. Large foreign investors regularly earn 4% per year and consider this an excellent result. Calculate for yourself how much it will be in 10 years if there are no drawdowns on the account.
3. Level up as a trader. In the market you are up against investment sharks, professionals. They have one task - to earn as much as possible, to take money from another participant, including you. Learn the intricacies of trading and investing on your own.
4. Choose a trading style that suits you. Determine for yourself what is closer in spirit and more comfortable to you - actively speculate or long-term investing. This is a strategy. Tactics - selection of instruments on the market (stocks, bonds, derivatives, etc.).