STSM123010 | Financial markets: trading venues: what is an exchange?

An exchange is a marketplace on which stocks and shares, and options and futures on stocks, bonds and commodities etc. are traded.

Types of exchanges

• Most exchanges specialise in a particular type of security, for example:

• Equities and debt instruments

• Derivatives, e.g. options, futures, swaps

• Commodities, e.g. oil, precious metals, grains

An exchange provides:

• liquidity in the market, allowing the trading of securities

• access for investors centrally to a wide range of securities

• integrity to the financial markets (due to their regulation)