Part 22: Stock Exchange

When reading about investments, we often come across news about stock exchanges. In this article, we’ll explore what they are and what role they play in the world of investments.

What is a Stock Exchange?

The main function of a stock exchange is to provide a central, transparent platform for trading shares, ETFs and other securities.

A stock exchange is a regulated market where buyers and sellers meet to trade shares of publicly traded companies and other securities. Picture it as an organized auction house for stocks or a shop, where transactions happen electronically and in real-time. For example, in the US market, the most famous “stores” are the New York Stock Exchange (NYSE) and NASDAQ. However, every country with a developed financial market has its own exchange or exchanges. Armenia also has its own stock exchange: the AMX.

The Role of a Stock Exchange

Stock exchanges perform several important functions in the investment ecosystem:

• Price and Liquidity | They provide a continuous market for securities. The constant flow of buy and sell orders on an exchange helps determine the fair market price at any given moment. This allows investors to quickly buy or sell their securities, thus creating liquidity for those securities.
• Facilitating Capital Formation | Stock exchanges are crucial for companies. When a company decides to “go public” through an Initial Public Offering (IPO), it lists its shares on an exchange. This allows the company to raise significant capital from a large number of investors. This capital is then used to expand the business, finance new projects, or pay off debt, which in turn contributes to economic growth.
• Regulation and Transparency | Exchanges operate under strict rules and regulations set by oversight bodies. These rules ensure fair trading, protect investors from fraud, and require companies to disclose important financial information that helps the investors in their decision making.
• Economic Barometer | The overall performance of a stock exchange is often seen as a barometer for the health of a country’s economy. Major stock indices, such as the S&P 500, track the performance of a group of companies listed on the exchange, giving investors and economists a summary of market sentiment and economic trends.

How to Access a Stock Exchange

As an individual investor, you cannot trade directly on stock exchanges. For that, you need a financial intermediary known as a broker (for example, Apricot Capital). In one of our previous blog posts, we discussed what to look for when choosing a broker. 

Your broker acts as a bridge, executing your buy and sell orders on your behalf through the exchange. When you submit an order to buy a security through your brokerage account, the broker sends that order to the exchange, where it is matched with a corresponding sell order from another investor.

It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Consider your financial goals and risk tolerance before investing.

Apricot Capital is regulated by the Central Bank of Armenia.

The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument. The past performance mentioned in this text is not indicative of future results.