Why does trading take place

More than 90 percent of all stock trading in Germany today takes place via the electronic trading platform Xetra. Via Xetra, you can buy and sell most German and important international stocks as well as exchange traded funds and products - index funds, commodity securitisations, etc. In Xetra, buy and sell orders usually meet with a price idea in a central, open order book.

In the order book, the orders face each other and the system automatically checks every buy and sell order for its executability. If orders match, the transactions are executed immediately. The open order book ensures the greatest possible degree of transparency for investors. Xetra is the reference market for the exchange trading of large German shares.

No other stock exchange in the world achieves higher turnover in these securities at market prices. Those who trade here profit from the highest liquidity and fair prices.

The DAX is calculated from the prices of the 30 German companies with the strongest turnover and is the most widely regarded indicator for the current development of the German stock market situation. Let us now move on to floor trading, which takes place in the main hall of the Frankfurt Stock Exchange.

You are certainly familiar with the hall from the television reports mentioned at the beginning. At the Frankfurt Stock Exchange, private investors can buy and sell around 1. This includes all German and many international stocks, funds, bonds as well as certificates and warrants.

Here, employees of securities trading firms, so-called specialists, support trading and ensure corresponding liquidity by publishing offer prices and quantities. They orient themselves to the current market situation and try to keep the difference between buying and selling prices as small as possible. The stock exchange works as a facilitator of this transaction and enables the buying and selling of shares. Stock markets are among the largest avenues for investments. Companies list their shares for the first time on a stock exchange through an IPO.

Investors may then trade in these shares through the secondary market. The two stock exchanges in India have on some occasions witnessed stocks worth INR 6,00, crores being traded. The uninitiated in India often consider investing in stocks markets gambling, but a basic understanding of the share market can change that perception.

The regulation and supervision of the stock markets in India rest with the Securities and Exchange Board of India. The inspections review the operations of the market and the organizational structure along with aspects of administrative control.

The main role of SEBI includes:. It is in the primary market that companies register themselves to issue their shares and raise money.

This process is also known as listing on the stock exchange. The purpose of entering into the primary market is to raise money and if the company is selling their shares for the very first time it is referred to as the Initial Public Offering IPO. Through this process, the company becomes a public entity.

The NYSE is the first type of exchange as we referred to above , where much of the trading is done face-to-face on a trading floor. This is also referred to as a "listed" exchange. Orders come in through brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location, known as the trading post, there is a specific person known as the "specialist" whose job is to match buyers and sellers.

Prices are determined using an auction method: the current price is the highest amount any buyer is willing to pay and the lowest price at which someone is willing to sell. Once a trade has been made, the details are sent back to the brokerage firm, who then notifies the investor who placed the order. Although there is human contact in this process, don't think that the NYSE is still in the stone age; computers do play a huge role in the process. The second type of exchange is the virtual sort called an over-the-counter OTC market, of which the Nasdaq is the most popular.

In such a dual-class structure , Class A shares , for example, may have 10 votes per share, while the Class B subordinate voting shares may only have one vote per share. Dual- or multiple-class share structures are designed to enable the founders of a company to control its fortunes, strategic direction, and ability to innovate.

Today's corporate giant likely had its start as a small private entity launched by a visionary founder a few decades ago.

Technology giants like these have become among the biggest companies in the world within a couple of decades. However, growing at such a frenetic pace requires access to a massive amount of capital. In order to make the transition from an idea germinating in an entrepreneur's brain to an operating company, they need to lease an office or factory, hire employees, buy equipment and raw materials , and put in place a sales and distribution network , among other things.

These resources require significant amounts of capital, depending on the scale and scope of the business startup. A startup can raise such capital either by selling shares equity financing or borrowing money debt financing.

Debt financing can be a problem for a startup because it may have few assets to pledge for a loan—especially in sectors such as technology or biotechnology , where a firm has few tangible assets —plus the interest on the loan would impose a financial burden in the early days, when the company may have no revenues or earnings. Equity financing, therefore, is the preferred route for most startups that need capital.

The entrepreneur may initially source funds from personal savings, as well as friends and family, to get the business off the ground. As the business expands and capital requirements become more substantial, the entrepreneur may turn to angel investors and venture capital firms. When a company establishes itself, it may need access to much larger amounts of capital than it can get from ongoing operations or a traditional bank loan.

It can do so by selling shares to the public through an initial public offering IPO. This changes the status of the company from a private firm whose shares are held by a few shareholders to a publicly-traded company whose shares will be held by numerous members of the general public.

The IPO also offers early investors in the company an opportunity to cash out part of their stake, often reaping very handsome rewards in the process.

Once the company's shares are listed on a stock exchange and trading in it commences, the price of these shares fluctuates as investors and traders assess and reassess their intrinsic value. There are many different ratios and metrics that can be used to value stocks, of which the single-most popular measure is probably the price-to-earnings PE ratio. The stock analysis also tends to fall into one of two camps— fundamental analysis , or technical analysis.

Stock exchanges are secondary markets where existing shareholders can transact with potential buyers. It is important to understand that the corporations listed on stock markets do not buy and sell their own shares on a regular basis. Companies may engage in stock buybacks or issue new shares but these are not day-to-day operations and often occur outside of the framework of an exchange.

So when you buy a share of stock on the stock market, you are not buying it from the company, you are buying it from some other existing shareholder. Likewise, when you sell your shares, you do not sell them back to the company—rather you sell them to some other investor. The first stock markets appeared in Europe in the 16th and 17th centuries, mainly in port cities or trading hubs such as Antwerp, Amsterdam, and London.

These early stock exchanges, however, were more akin to bond exchanges as the small number of companies did not issue equity. In fact, most early corporations were considered semi-public organizations since they had to be chartered by their government in order to conduct business.

Prior to this official incorporation, traders and brokers would meet unofficially under a buttonwood tree on Wall Street to buy and sell shares. The advent of modern stock markets ushered in an age of regulation and professionalization that now ensures buyers and sellers of shares can trust that their transactions will go through at fair prices and within a reasonable period of time. Today, there are many stock exchanges in the U.

This in turn means markets are more efficient and more liquid. These shares tend to be riskier since they list companies that fail to meet the more strict listing criteria of bigger exchanges. Larger exchanges may require that a company has been in operation for a certain amount of time before being listed and that it meets certain conditions regarding company value and profitability.

In most developed countries, stock exchanges are self-regulatory organizations SROs , non-governmental organizations that have the power to create and enforce industry regulations and standards.

The priority for stock exchanges is to protect investors through the establishment of rules that promote ethics and equality. The prices of shares on a stock market can be set in a number of ways. The most common way is through an auction process where buyers and sellers place bids and offers to buy or sell.

A bid is the price at which somebody wishes to buy, and an offer or ask is the price at which somebody wishes to sell. When the bid and ask coincide, a trade is made. The overall market is made up of millions of investors and traders , who may have differing ideas about the value of a specific stock and thus the price at which they are willing to buy or sell it.

A stock exchange provides a platform where such trading can be easily conducted by matching buyers and sellers of stocks. For the average person to get access to these exchanges, they would need a stockbroker. This stockbroker acts as the middleman between the buyer and the seller. Getting a stockbroker is most commonly accomplished by creating an account with a well-established retail broker. The stock market also offers a fascinating example of the laws of supply and demand at work in real-time.

For every stock transaction, there must be a buyer and a seller. Because of the immutable laws of supply and demand, if there are more buyers for a specific stock than there are sellers of it, the stock price will trend up. Conversely, if there are more sellers of the stock than buyers, the price will trend down.