When we explore more and more about the stock market, the primary exploration should start with what exactly is the stock exchange and how the stock exchange does function, to perform various activities of the stock market. The stock exchange is simply a location that exists either physically or virtually, where the trade of the stock is taken place. Large companies can get their shares listed on many of the stock exchanges, not just in one country, but in multiple countries. Though every company wishes to have it listed on the stock exchanges, it is not possible, and the trade is usually performed over the counter, or through a mediator called a dealer.
Stock exchanges are not just the places for the shares, but also for the interest derivatives or fixed interest securities.
Type of Stock Exchange Functions
The stock exchange performs the functions regarding buying and selling and investing in the companies through two kinds of features called performing the action and all its related activities in a physical location and the other is performing in the virtual location.
Physical Locations
Some stock exchanges perform the stock exchange functions in the physical locations. The economic transactions or the exchange of the stocks take place on the trading floor. Usually, these exchanges follow the open Outcry.
What is Open Outcry
Open Outcry is the method of communication to pass out the information regarding the orders of buying and selling. This communication happens through hand signals. You might have seen in old movies, where these transactions do happen when somebody shouts hard, and people make the calculations and make the decisions for investments accordingly. The particular place, where hand signals are passed, is called a pit. Open Outcry is usually conducted also in the commodity exchanges.
Open Outcry is an interesting process to transact the shares. We get the opportunity to quote the best price and bid for a particular company, in which we are investing. This auction is different from the over the counter market methods in the way the offers and bids are negotiated. New York Stock Exchange still performs the stock exchange functions in the physical locations.
Virtual Locations
As opposed to the physical location of the stock exchange, all the functions related to the stock exchange are performed in the network of computers, rather than in a single location. If you are a stockbroker, you can start a new office near your house and manage the stocks of all your clients. With the computerized world, it has become quite easy and simple. So, the transactions and trading can be done right at your office, without stepping out. The best example of the stock exchanges, where functions of those performed virtually are NASDAQ, which is an American stock exchange.
No matter the trading and transaction are done either physically or virtually, the objective and process are the same. The buyer performs bidding for a particular company quoting a specific price, and the seller seeks a particular price to exchange the same stock.