What is an exchange in clear language - what is sold on it, how to access it and is it possible to make money on the exchange

When did the first exchanges appear?

The term "exchange" is translated from Latin as "leather bag." In the 13th century, trading of the first securities took place on the square in Bruges, where the house of the van der Burse family stood. The family's family coat of arms depicted three leather bags (ter buerse), in honor of this meeting of merchants in the square they received a derivative name - Borsa (exchange).

The world's first stock exchange was opened in 1602 in Amsterdam, where stocks, bonds were traded, and there was even exchange clearing - accounting for the obligations of the seller and buyer of securities. 100 years later, inspired by her work, Peter I opens the first stock exchange in Russia. Thus, in 1703, together with St. Petersburg, the first domestic stock exchange appeared and started operating.

Frequently Asked Questions About Stock Market History

✔️ In which city did the first stock exchange appear?

The first exchanges arose in the city of Bruges, to which Van der Burse, a merchant from Belgium, moved. The Burse Exchange has never been officially registered. The first organized exchange arose in Antwerp, a rival of Bruges.

✔️ Which of the existing exchanges is the oldest?

The Amsterdam Stock Exchange is considered the oldest today. The year of birth of the exchange is 1612, but trading as such began much earlier. A separate building for trading was built in 1612. Before this, trading took place on the bridge.

✔️ When was the NYSE created?

The NYSE was created in 1972 by New York City brokers who previously gathered in coffee shops to conduct business. The exchange is located in New York on Wall Street and is a symbol of the financial power of the United States.

What is an exchange and why is it needed?

An exchange is a market where each participant finds something of their own - tools for making money or money for a project. Companies go public to attract investment in business or for certain projects. Investors, in turn, invest money in stocks and bonds of companies to make a profit.

Each transaction on the stock exchange is registered and executed by a professional participant. To make a transaction on the exchange, you need to place an order. Only legal entities that meet certain requirements can do this. One such person is a broker. The broker acts as an intermediary between the investor and the exchange. The investor submits an instruction for a transaction to the broker, and the broker, guided by this instruction, enters into transactions on the stock exchange. So he plays the role of an intermediary and allows private individuals to enter the exchange.

When registering in the Gazprombank Investments application, the user, although he selects instruments in the catalog independently, entrusts the transaction to a broker - broker GPB Investments LLC.

For example, the owner of a car wash decided to raise money to expand the business and build a car service center. After going through a certain procedure, he issued bonds to raise money, and investors, having invested in the bonds, lent money to the company. The introduction of these bonds to the market allowed the business to attract the necessary financing at a lower interest rate than the bank offered it, and for investors to invest money at a higher interest rate than the bank deposit suggested. The broker helped to complete and register the transaction.

Financial instruments offered to private investors by the Moscow Exchange. Source: moex.ru

The activities of exchanges in various countries are regulated by law and undergo strict inspections and licensing procedures. The operation of the exchange is monitored by a regulator - a body, commission or other organization, depending on the legislation of the country in which the exchange is located. The regulator monitors compliance with the law and issues licenses to brokers.

The stock market regulator in Russia is the Central Bank of the Russian Federation. It is critically important for investors to check that all transaction intermediaries have valid licenses, otherwise there is a high risk of suffering from scammers, not buying shares and losing money. These documents can be found on the official websites of brokers - if the license number or the document itself is difficult to read, most likely you are dealing with scammers. A complete list of trading participants is available on the official website of the Bank of Russia - in the “Check organization” section you can check the company and its license.

Relations between participants and the operating mechanisms of the exchange itself are regulated by the Federal Law “On the Securities Market” and the Federal Law “On Organized Trading”.

What can you buy on the stock exchange?

Securities, bonds, units of investment funds (UIFs) and other financial instruments are traded on the stock exchange. Each exchange has its own set of instruments: for example, on the Moscow Exchange you can buy currency and various securities, and on the St. Petersburg Exchange foreign securities and goods are traded - from construction materials to aquatic biological resources and their processed products.

Financial instruments and data important for investors are located on the main page of the St. Petersburg Exchange website. Source: spbexchange.ru

Depending on the instruments traded, exchanges are:

• commodity - they trade raw materials, products, grain, energy, oil, etc.
• stock exchanges - stocks, bonds and depositary receipts are traded on them.
• foreign exchange - make it possible to buy and sell currency.
• futures - enter into futures contracts on currencies, stock indices, commodities and raw materials.
• options - they trade options on currencies and other instruments.

But there are also universal ones - they combine trading in different instruments, for example, in different sections. In Russia, the universal exchanges are Moscow and St. Petersburg.

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.

Largest exchanges in the world

In total, there are about 250 platforms in the world where you can buy or sell financial instruments. The five largest exchanges in the world are:

1. New York Stock Exchange. It is considered the largest in terms of turnover; its market capitalization, that is, its value on the market, is $25.5 trillion. Here the most famous stock indices are determined - indicators of price changes for certain groups of securities, for example, the Dow Jones, NYSE Composite and NYSE ARCA Tech 100 Index.
2. NASDAQ is another American exchange. It specializes in high-tech companies, and the number of shares traded there is already more than 3,200.
3. The Japanese exchange group is the leader of the Asian exchange sector. It operates various exchanges, including the Tokyo Stock Exchange and the Osaka Securities Exchange.
4. The Shanghai Stock Exchange is the leader among exchanges in mainland China. By the way, there are only two types of shares on the exchange: A and B. A-shares are traded for yuan, and B-shares can only be purchased by non-residents and for US dollars.
5. Euronext NV is a pan-European stock exchange with offices in Belgium, the Netherlands, Portugal and France. On the exchange you can buy not only shares and derivatives, but also receive clearing services.

The daily trading volume of the New York Stock Exchange is about $1.5 trillion, while the NASDAQ trades daily at $1.3 trillion.

History of stock trading

At its core, an exchange is one of the variants of an organized market, a kind of trading platform. This name was given to complex financial institutions - legal structures that ensure communications between sellers and buyers.

Participants in exchange trading transactions can use different financial instruments: commodities, securities, currency and others. Depending on this, there are commodity, stock, currency, and cryptocurrency exchanges. They have a significant impact on shaping wholesale and financial markets around the world. All exchange transactions take place with the participation of an intermediary - an agent, whose role is played by brokers. The development of Internet technologies has led to the emergence of online brokers. The role of a broker can be a legal entity or an individual who has the right to access financial markets and, accordingly, the right to sell securities and other assets.

What are exchanges for?

This name is well-known to many, but most ordinary people have no idea what exchanges are, how they work, what role they play in the world market, when and why exchange trading arose and why such structures are needed at all. And such knowledge would be useful not only to investors, but also to ordinary citizens. We are all indirectly participants in exchange trading and, in a certain sense, reap the benefits of transactions concluded on this market.

How is this possible?

The fact is that commodity exchanges influence the wholesale pricing of various goods that we will then buy: oil, gold, coffee, grain, and other items.

Stock exchanges are a place where insurance, investment and other companies, as well as banking organizations and various funds, including pension funds, can make money. For example, if you want to ensure a decent old age for yourself and for this purpose have invested in one of the Ukrainian non-state pension funds, know that such structures invest part of the money in securities (stocks, bonds), the purchase/sale of which would be impossible without stock exchanges.

Let us briefly list the functions that exchanges perform:

1. creating conditions for meeting and interaction between bidders (sellers and buyers). For example, a company decided to raise financing by selling shares. You can find buyers through stock exchanges - thanks to them, the liquidity of securities increases. Using these trading platforms, you can buy/sell assets on a regular basis;

2. formation of trading rules. The exchanges ensure civilized trading, where all participants comply with established regulations, which relate to both the transactions themselves and the quality of goods;

3. in case of disputes, the exchange acts as an arbitration intermediary between trading participants;

4. The quotation commission, acting on behalf of the exchange, provides quotation - the official registration of minimum and maximum prices. Thanks to the quotation, trading participants receive the necessary information about market conditions, thus ensuring transparency of trading;

5. the exchange provides traders with the necessary documentation, develops standard contracts, etc.;

6. official trading platforms are guarantors of transaction execution.

Initially, the main task of exchange structures is to help meet buyers and sellers, to create conditions so that it is easier for sellers to sell their products (assets), and buyers take less risk. Over time, the capabilities of exchanges and the list of tasks have expanded. In a global sense, exchanges ensure the redistribution of funds, including investments, between different countries, industries, economic sectors and individual enterprises, thus facilitating the efficient use of capital. The main source of income for exchanges is commission fees on transactions (percentage and/or fixed fee).

Main participants of the exchange:

1. brokers - intermediaries between issuers, investors and traders;

2. registrars - organizations that register and record the owners of securities;

3. depositories - organizations performing the function of storing assets;

4. regulator.

When did the first exchange appear and exchange trading begin?

According to historians, the first steps towards creating regulated trading platforms such as exchanges were made in the 13th century. Even then, there was an understanding among business people that it was necessary to organize a place where potential participants in trade transactions could meet, discuss and agree on prices for goods, and without the physical presence of the latter. This is how the first commodity exchanges appeared, a little later - stock and, finally, their currency analogues.

It should be noted that the first prerequisites for the creation of such trade institutions arose in Ancient Rome. Even then, traders came to the conclusion that an agreement on the price and delivery of goods could be concluded without their physical delivery to the trading place.

It is believed that the history of the development of stock trading as we understand it today originates in the Belgian city of Bruges. At the beginning of the 15th century, the Van der Burse family lived here, which, according to experts, founded the world's first stock exchange.

Back in 1409, the head of the venerable family organized regular meetings of merchants from all over Europe. The businessmen gathered in a small area in Bruges near hotels owned by the Van der Burs. They negotiated and concluded wholesale trade deals, and used promissory notes as payment documents. Most likely, the name of the exchange form of trading is directly related to the Van der Boers and their surname - byrza. Translated from Greek, this word means bag, wallet.

First trading on the stock exchange

The first official stock exchange opened in Antwerp. At first it was an ordinary market square, where merchants entered into contracts for the purchase of various goods. At the same time, buyers purchased the required products according to a sample: they did not take the entire batch, but a certain part - a sample. In 1531, a specialized building of the Antwerp stock exchange opened. Trade in goods and government bonds took place here. The prosperity of the exchange ended in the 80s of the 16th century due to the consequences of the Dutch revolution: Antwerp was destroyed. But international exchange trading did not stop - its history continued in Amsterdam. A new financial instrument has also appeared in the Netherlands - shares. The first companies to list their shares on the stock exchange were the East India Company (1602) and the West India Company (1621).

In 1637, when the Dutch economy collapsed, the London Stock Exchange (LSE), which is still in operation today, gained worldwide fame and popularity.

Today there are several hundred commodity and stock exchanges in the world.

The most famous and largest exchanges

Modern stock exchanges ensure the safe functioning of the securities market. Participants in global trading platforms can work with a large list of financial instruments: stocks, bonds, derivatives, options, stock indices, ETFs and others. Potential investors can choose a suitable exchange by studying specialized ratings - they are updated regularly.

The top 10 leading global trading platforms include:

1. The New York Stock Exchange was created in 1972. Shares of companies with annual profits of $2.5 million or more are traded here;

2. young progressive American exchange NASDAQ. It began operations in 1970 as an automated quotation system;

3. Japanese corporation Japan Exchange Group, created as a result of the merger in 2013 of the two largest stock exchanges in the Land of the Rising Sun - Tokyo and Osaka;

4. the largest exchange platform in China is the Shanghai Stock Exchange (SSE), which is more than 150 years old;

5. one of the most influential stock exchanges in Asia - Hong Kong;

6. Euronext conglomerate, created as a result of the merger of several financial structures, including Amsterdam, Paris, Brussels and Portuguese trading platforms. Operating since 2000;

7. London Stock Exchange, on which ½ of all securities in the world are traded;

8. One of the fastest growing trading platforms is the Shenzhen Stock Exchange (SZSE). It is called the Chinese equivalent of NASDAQ because, like its American counterparts, the organizers of SZSE specialize in trading shares of high-tech companies. Just like the Shanghai Exchange, the trading platform in Shenzhen is under the patronage of the National Securities Regulatory Commission;

9. Toronto Stock Exchange, which began operating in 1861. Canadians were the first in the world to introduce electronic trading - in 1977, the exchange launched the Computer Assisted Trading System;

10. Bombay Stock Exchange, the oldest in the Asian region, has been operating since 1850.

Trends and prospects for the development of the stock market

Financial experts note:

strengthening interconnections between national trading platforms and the trend towards globalization. This opens up new opportunities for the development of enterprises that gain access to domestic and foreign capital;

strengthening the influence of stock markets on the economy;

increase in the currency factor in international transactions: exchange rate volatility affects the movement of financial flows.

The infrastructural development of the stock market deserves special attention. With the introduction of computer and telecommunications technologies, access to the stock market is expanding and at the same time, competition between trading participants and the exchanges themselves is intensifying. The era of Internet trading has arrived, the history of which began in 2000, when the world's largest trading platforms began to switch to working online. A modern exchange is a retail outlet that can serve participants remotely, through special programs and working terminals. Online brokers provide access to trading and technical support.

What exchanges are there in Russia?

Stock exchanges in Russia are the Moscow (Moscow Exchange), St. Petersburg and St. Petersburg Commodity and Raw Materials Exchange. You can use them to buy or sell Russian and foreign securities, currencies and precious metals. Petroleum products, oil, gas, and timber are traded on the commodity exchange. The daily trading volume of the Moscow Exchange is about 64.11 billion rubles, on the St. Petersburg Exchange - about 71.3 billion rubles, on the St. Petersburg Commodity and Raw Materials Exchange - about 4.157 billion rubles.

The first two are the most interesting for private investors - Moscow Exchange and St. Petersburg.

The St. Petersburg Exchange has always been considered the largest platform in Russia for trading foreign shares. But in August 2022, Moscow Exchange began offering them. On the Moscow Exchange, settlements on securities of foreign companies are carried out in rubles, on the St. Petersburg Exchange - in foreign currency.

The State of Financial Markets in the Twentieth Century

In the second half of the twentieth century, there was a change in the leader of exchange trading. A process was taking place in the world monetary system in which monetary interdependence became more complex. Contrary to this, and paradoxically, the commodity sector has changed very little compared to the Middle Ages. In the Middle Ages, wheat was the main value, then it was replaced by pepper and silver, which in turn were replaced by gold. Nowadays, the most valuable goods are represented by energy resources.

Who's who on the stock exchange

Professional and ordinary participants make transactions on the exchange.

Professional

Are licensed to perform operations. These are brokers, trustees, clearing houses and regulators:

• A broker
  is an intermediary between the exchange and the investor. He enters into an agreement with the buyer of shares and acts on his instructions.
• A trustee
  is a company that controls an investor's portfolio by agreement with the investor.
• The clearing house
  is the central counterparty for all transactions.
• Federal Treasury
  - conducts operations on the stock market and provides liquidity.
• A regulator
  is an organization that monitors the legality of transactions. It also issues licenses to professional participants.

Regular participants are issuers and private investors.

They can enter the exchange only through professional trading participants.

• Issuer
  - a company (city or country) that issues shares or bonds to raise capital.
• Investor
  - a legal entity or individual who invests capital in shares to make a profit

Investors can be qualified or unqualified: this determines the range of financial instruments available for purchase.

How stocks and bonds appear on the stock exchange

Companies go to the stock exchange for money, investors go to the stock exchange to make money. When a business achieves success, the owners of these companies look for tools to attract additional funding. Raising money on the stock exchange is often easier than borrowing from a bank - by issuing bonds on the market, a company can borrow more than a financial institution can provide. The term of the loan can be determined by the issuer himself, without being tied to the bank’s conditions.

A similar process occurs with shares: companies carry out a certain sequence of procedures in accordance with the legislation of the Russian Federation and enter an IPO - the first public offering of shares.

An investor who buys shares of a company becomes a shareholder and receives dividends if the issuer pays them. The bond buyer lends money to the company, waits for the debt to be repaid, and receives coupon payments—essentially, interest on the deposit. Both shares and bonds can be sold on the stock market, but not at par, but at the market price.

The state of brokerage activities in the Russian and Ukrainian markets

A financial company is an organization specializing in the provision of financial services in a wide range, including training and consultations, brokerage services, dealing services, trust management, etc. A brokerage company is an organization that has a license for brokerage activities, representing an intermediary in the interaction of the end consumer or financial companies with a stock exchange. It happens that the same company carries out financial and brokerage activities. This is often done by companies seeking to expand the range of services provided.

In the Russian and Ukrainian markets, brokerage activities began much later than in the USA and Europe . Financial culture in Russia and Ukraine began its development only after 1991, the process of which continues to the present day. In the Russian financial market, the economic development of the last fifteen years has led to great changes. There are many more participants in the Russian stock market today than there were before. There have been major changes for the better in access to global financial markets. There is an annual increase in Russians' interest in financial services, which indicates growing financial literacy among the population.

How investors make transactions on the stock exchange

To gain access to trading, an investor must enter into an agreement with an intermediary - a broker or trustee. Only through them can a non-professional market participant make transactions.

Broker

carries out operations on the stock exchange on behalf of the investor. Money for transactions and commissions for services are debited from his account. The broker himself pays income tax for the investor - 13%. The activities of brokers in Russia are controlled by the Central Bank of the Russian Federation. Typically, exchange websites list partners through which investors can access trading.

Trustee

differs from a broker in that it develops an investment strategy for the investor. For example, what financial instruments to buy and for what period. In accordance with the strategy, the manager concludes transactions. For his actions, he retains a commission in addition to taxes and transaction fees. However, he does not guarantee profit: sometimes his tactics can be unprofitable.

The investor is also required to open a brokerage or individual investment account from which he will make transactions. It will display information about his transactions. The process of buying and selling securities can be schematically represented as follows:

The process of buying shares on the stock exchange. Source: gazprombank.investments

State of the International Foreign Exchange Market

The emergence of the International Forex Currency Market occurred in 1976, in January, which is considered the time when the world monetary system was born, which replaced the gold standard. The countries of the G7 made a decision in Kingston, Jamaica, according to which the existing currency canons were restructured and a system of freely floating exchange rates began to be used. It should be noted that Forex is a market on which conversion operations are carried out, and it is not a market that is unique in its kind, since there is also a banking market for credit and deposit foreign exchange transactions, and each country has its own national foreign exchange markets.

What are stock indices

The securities of many issuers are traded on the stock exchange. It is impossible to track all the movements that occur with them. To assess the general state of the market and predict trading results, experts came up with stock indices. They show how much the value of a particular group of shares has changed on average.

The Moscow Exchange Index - IMOEX - is an indicator of the state and dynamics of the market for a certain group of securities. The index repeats the dynamics of securities: if the prices of the shares included in it rise, then the index goes up. The list of issuers included in the index is available on the Moscow Exchange website.

Stock indicators are calculated for a certain number of securities for countries, industries and financial instruments. The larger the issuer and the more frequently its shares are traded, the greater the company's weight in the index.

Indices are divided into international and national. On the Russian market, the main ones are the Moscow Exchange index in rubles and the RTS index in dollars. Shares of issuers represented in both indicators have the greatest liquidity - the ability to quickly sell at the market price. In American - Dow Jones index, S&P, NASDAQ indices.

Dynamics of the American NASDAQ index for the maximum trading period. Source: investing.com

There are also certain trends in the stock exchange that you can hear about in podcasts and read on forums. Trends are a market condition in which the price of financial instruments moves in one direction. The two most important are bearish and bullish.

• Bearish - a situation in which market participants, bears, do not believe in market growth. They play to reduce it, making money on the fall of shares;
• Bullish - a situation in which market players, bulls, on the contrary, are waiting for the market to rise. They bet on its rise, benefiting from the rise in price of securities.

On the insvesting.com portal, users can make forecasts about stock market trends based on the personal expertise of other investors.

The emergence of the first brokerage houses

The active development of trading was noted in the period of the nineteenth and twentieth centuries , when they quickly conquered the world financial market. Of course, the scale of the market today and its model in the nineteenth century are not comparable. The exchange business, due to its high attractiveness and the growing number of participants represented by trading firms and ordinary citizens, required the provision of services, including to ordinary people who had savings and wanted to participate in trading. The only problem was that large investment funds did not provide services to small investors, since before that the objects of their management were large monetary assets belonging to one family, and then companies, etc.

In this regard, based on the demand generated by small and medium-sized investors, in 1899 the first investment brokerage firm appeared in the United States, representing the interests of small clients and advising on related issues. Thus, this marked not only the emergence of brokerage activities, but also the appearance on the market of the prototype of those who are now called speculators, whose interests lie in playing on price differences.

What are the risks when trading on the stock exchange?

Investments in securities are not insured by the state, so investors always risk losing capital. This may happen due to a decline in the value of shares or bankruptcy of companies: for example, the company that issued the bonds will not be able to repay the loan.

To prevent such a scenario, you should diversify your portfolio: buy different financial instruments from different issuers, as well as analyze the activities of companies and follow news that affects the price of shares.