‘Stock market’ and ‘stock exchange’ are often used interchangeably. However, the latter term is really a subset of the former. Traders in the stock market buy or sell shares on stock exchanges that are part of the overall stock market.
Table of Contents
Here Is The Difference Between stock Market And Stock Exchange
A stock market is often represented as an index or grouping of various stocks such as the S&P 500. A stock exchange is a market that brings together buyers and sellers to facilitate investments in stocks.
Stock market broadly refers to a number of stock exchanges in which shares of public companies are bought and sold. Such financial activities are conducted through formal exchanges (physical or electronic) and via over-the-counter (OTC) marketplaces under a defined set of regulations.
Stock exchange is a marketplace or the infrastructure that facilitates equity trading. (Equity trading is the buying and selling of company shares or stocks, also known as equities, on the financial market). On the other hand, a stock market is an umbrella term representing all of the stocks that trade in a particular region or country.
Purpose of a Stock Exchange
Investors trade different financial instruments on a stock exchange, including equities, commodities, and bonds. Stock exchanges bring corporations and governments, together with investors.
A stock exchange brings companies and investors together. It helps companies raise capital or money by issuing equity shares to be sold to investors. Companies invest those funds back into their business, and investors, ideally, earn a profit from their investment in those companies.
Exchanges help provide liquidity in the market, meaning there are enough buyers and sellers so that trades can be processed efficiently without delays. They also ensure that trading occurs in an orderly and fair manner so important financial information can be transmitted to investors and financial professionals.
International Stock Exchanges
The New York Stock Exchange (NYSE) is the largest stock exchange in the U.S. and the world by market capitalization. The NASDAQ is the second-largest stock exchange in the U.S. The American Stock Exchange, which is now known as NYSE Amex Equities is the third-largest in the U.S.
The Bottom Line
Every stock must list on an exchange where buyers and sellers meet. The two big U.S. exchanges are the NYSE and the Nasdaq. Companies listed on either of these exchanges must meet various minimum requirements and baseline rules concerning the “independence” of their boards.
But these are by no means the only valid exchanges. Electronic communication networks are relatively new, but they are sure to grab a bigger slice of the transaction pie in the future. Finally, the over-the-counter (OTC) market is a fine place for experienced investors.
Investors with a desire to speculate and the know-how to conduct a little extra due diligence. The term over-the-counter (OTC) refers to markets other than the organized exchanges described above. OTC markets generally list small companies, many of which have fallen off to the OTC market because they were delisted.