An exchange is a marketplace where securities, such as stocks, bonds, options, and derivatives, are traded. Exchanges provide a platform for buyers and sellers to come together and trade securities at prices that are determined by supply and demand.
Exchanges can be divided into two main categories: stock exchanges and commodity exchanges. Stock exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, are where stocks and other securities are traded. Commodity exchanges, such as the Chicago Mercantile Exchange (CME), are where commodities such as gold, oil, and agricultural products are traded.
Exchanges have rules and regulations that govern the trading of securities, and they also provide transparency and liquidity to the market. They also have a role in maintaining fair and orderly markets and protecting investors.
Exchanges also have a role in providing market data, such as prices and trading volumes, which is used by market participants to make investment decisions. Additionally, exchanges also provide clearing and settlement services, which ensure that trades are settled and that the appropriate parties receive the securities or cash that they are due.
It’s important to note that trading on exchanges is not the only way to trade securities, there are also over-the-counter (OTC) markets where securities are traded between two parties directly, rather than on a centralized exchange.