The stock exchange is a central marketplace for trading securities such as stocks, bonds and derivatives. While trading used to take place on the stock exchange floor, today there are also electronic marketplaces.
Stock market prices are determined by supply and demand. The exchange ensures that the prices for financial instruments are fair and transparent.
Trading hours vary by exchange and country. Those wishing to trade on US exchanges can also make use of pre-market and post-market trading.
Every investor is probably familiar with the stock exchange – after all, securities are traded there like shares. Nevertheless, many investors have never been to the stock exchange themselves. Because the actual buyers and sellers of securities nowadays usually do not come into direct contact with each other. So what exactly is the exchange and how does trading work?
Stock market: A definition
A stock exchange is a central marketplace for trading securities such as stocks, bonds and derivatives. Companies can raise capital via the stock exchange, and investors can in turn invest money in the company.
However, private investors do not have to buy securities on the stock exchange themselves. You can place the so-called order, i.e. the purchase or sale order for securities, with intermediaries such as custodian banks, brokers and securities trading houses. The dealers usually get a commission for the mediation.
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Stock exchange transactions are now almost exclusively concluded electronically. Securities are hardly available in printed form. In the past, stock exchange trading on the trading floor was face-to-face. Back then, orders were given by shouting and hand gestures.
Supply and demand determine the market price
Stock exchange prices are determined by supply and demand. Trading systems calculate share prices and thus also the stock market prices using existing buy and sell orders. If there are more buyers than sellers for a security, the price will rise. If more investors want to sell than buy, it falls.
The exchange ensures that the prices for financial instruments are fair and transparent. Trading is strictly regulated – by EU regulations, the Stock Exchange Act and the Securities Trading Act.
What exchanges are there?
There are different types of exchanges. Stocks are traded on the stock exchange, commodities on the commodity exchange, derivatives on the futures exchange and currencies on the foreign exchange exchange.
The largest and best-known stock exchanges in the world include the New York Stock Exchange (NYSE) and NASDAQ in the US, the London Stock Exchange (LSE) in the UK, the Tokyo Stock Exchange (TSE) in Japan and the Shanghai Stock Exchange (SSE) in China.
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The first German stock exchange was founded in Augsburg, but today it no longer plays a role as a trading center for goods and securities. There are now stock exchanges in Stuttgart, Munich, Berlin, Düsseldorf and Frankfurt. There is also the Hamburg-Hannover joint stock exchange.
The Frankfurt Stock Exchange is the most important German stock exchange, including the fully electronic trading system Xetra, and the trading venue Frankfurt Stock Exchange.
When can you trade on the stock exchange?
Trading on stock exchanges takes place between the start and end of trading – the times differ, however. Xetra, Germany’s most important stock exchange, is open on weekdays from 9:00 a.m. to 5:30 p.m. Trading on the Frankfurt Stock Exchange generally takes place from 8:00 a.m. to 10:00 p.m., just like in Stuttgart. The stock exchanges in Berlin, Düsseldorf and Munich also open trading at 8:00 a.m., but close at 8:00 p.m.
Anyone who trades regularly on US stock exchanges can only start later. The largest electronic stock exchange in the USA, the NASDAQ, and the NYSE open at 9:30 am New York time, which is 3:30 pm German time. The two US stock exchanges close at 10 p.m. German local time. However, investors can also buy and sell securities here outside of regular trading hours. So-called pre-market trading begins at 10 a.m. German time, after-hours trading ends at 2 a.m.