A Guide to Stock and Commodities Exchanges
Stock and commodity exchanges are exchange markets that are open platforms allowing sales and purchases of stocks and other financial products such as commodities and futures. This is a complex platform including derivatives and futures transactions. The stock and commodity exchanges provide many people and organizations investment tools to build wealth. These platforms also provide a worldwide marketplace for those selling stocks and commodities such as agriculture and precious metals.
Stocks are considered equity shares or owning a share or piece of a company. This type of ownership is known as equity ownership, in other words, owning a piece of a corporation’s equity. The corporation raises capital by selling units or portions of the company and its profit to shareholders. In turn, those who purchase these units are partial owners of the corporation.
History of Stock Exchanges
There are many debates between scholars regarding the first appearance of a stock market or exchange in history. Many scholars date the first occurrence of a stock exchange back to ancient times. Writings have been found claiming Roman stock ownership of government leases was very common around the 2nd century BC. The history of the modern stock exchange has been traced to The Dutch East India Market in the very early 1600s. This eventually led to the London Stock Exchange which was the model for the largest stock exchange today, The New York Stock Exchange, Listed below are great informational guides to the history of the world’s stock exchanges:
- Ancient versions of a stock exchange: Ulrike Malmendier, a well respected economist debates the existence of an ancient version of the stock market in Rome in a detailed 44 page paper written for Yale University.
- The First Modern Stock Exchange: The Dutch East India sold its first shares in 1602 making it the first modern stock exchange.
- History of the US Stock Exchange: Signing the Buttonwood Agreement in1792 was the beginning of the US Stock Exchange.
- China and The World Financial Markets: China had a great impact on the world financial market in the early 1900s.
- Crash of the US Stock Market in 1929: The stock market crash was the beginning of a ten year depression in the US and the crash affected the worldwide financial market.
- World Stock Exchange Today: The World Stock Exchange is an association comprised of 52 exchanges around the world.
There are many key terms when discussing stocks and the stock market that have specific meaning in the financial and investment world. Understanding the meaning of these key terms will help define the concepts when learning about the stock market. There are many terms that have different meanings outside the financial arena. It is important to know the meaning as it relates to the stock market.
- Bonds: Offers information on the different types of bonds and their markets.
- Dividends: Outlines the functions of cash and stock dividends and what the ramifications of each can be on shareholders and corporations.
- Derivatives: Gives definition of derivatives securities and example of when this type of investment takes place.
- Earnings: Glossary of terms including earnings and earnings growth.
- Enterprise Value: Provides descriptive meaning of enterprise value, formula for calculating the enterprise value of an organization, and when this is used in the stock market.
- Stock Valuation: The purpose of valuing stock can be beneficial to both the shareholder and corporation based on current and future performance.
- Asset Allocation: A description of asset allocation and a guide to how this can reduce risk.
- Mutual Funds: An elaborate description of mutual funds and their function in an investment portfolio.
- Market Capitalization: Offers an explanation on the method to determine market capitalization.
Why Do We Need Stock Exchanges
A stock exchange provides a platform for buyers to purchase stock from many different companies while this exchange platform offers a marketplace for sellers to find buyers to purchase their stock in a relatively short amount of time. Without a stock exchange, buyers and sellers of stocks would reply on other archaic methods such as classified advertisements, which offer limited exposure to potential buyers and sellers. In short, a stock exchange provides an easy solution for all entities involved. There is a dynamic benefit for everyone involved in this type of marketplace including the economic well being of countries.
- Why do We Need the Stock Exchange: Provides an insight into why we need the Stock Exchange and the benefits these types of platforms provide to the financial health of the world.
- Why do we need a stockbroker: Provides steps to finding the right stockbroker or investment professional.
- Benefits to Buyers and Sellers of Shares: Stock markets allow buyers and sellers of stock to connect through a stock market and make transactions that would otherwise not be an option.
- Economic Effect: Offers information on how the stock market can be beneficial to an economy as well as the adverse effects of an economy on a stock market.
- Global Factors: Shows how stock markets are affected by global disturbances as well as positive stimulations.
Five Major Stock Exchanges in the World
The world’s five largest stock exchanges account for the majority of the globe’s financial transactions. These five major stock exchanges have seen many changes in the past with mergers and growths. The leaders in the world’s financial sector include the United States, Japan, the United Kingdom, and the People’s Republic of China. There are many active stock exchanges around the world with a smaller number of companies listed who have a lower overall market capitalization compared to the five largest exchanges world-wide.
- New York Stock Exchange (NYSE): The largest stock exchange in the world, the NYSE has been traced as far back as 1792.
- NASDAQ:An American electronic stock exchange which opened in 1971 and was the world‘s first electronic stock exchange.
- Tokyo Stock Exchange: Originally open in 1878 as a way for the government to trade bonds but currently operates as one of the worlds largest stock markets.
- London Stock Exchange: Trading began in a coffee houses in London during the 17th century and led to the opening of the London Stock Exchange.
- Hong Kong Stock Exchange: Originally established in the 1800, Hong Kong Stock Exchange merged with several other exchanges and has had the most growth since the 1986 mergers.
Process of a Company Being Listed on an Exchange
In order for a company to be listed on a stock exchange, basic requirements must be met. Each stock exchange has their won individual requirements however there are common requirements between most major stock exchanges. Each requirement must be met before a company is listed. Once listed on a major exchange, shares are available for purchase.
- Minimum Number of Publicly Traded Shares: Offers strategies for going public and listing in a major stock exchange.
- A Review of Eligibility: An example of the eligibility requirements and review process to be listed on a major stock exchange.
- Application for Listing: Once the eligibility of a listing is determined, the application process begins.
- Minimum Requirement for Market Capitalization: There are different minimum market capitalization requirements for each stock exchange. Offers a sample of what NASDAQ requires.
Commodities Exchanges are for investors and commodity buyers go to purchase futures, derivatives and commodities for trading or profit. There are a wide variety of raw materials, such as coffee, cotton, and oil, across the world’s commodity exchanges. Commodities exchanges have been in existence as far back as history can tell. Contracts for these exchanges are what sets the modern exchange apart from the historical exchanges.
History of Commodities Exchanges
During the early 12th century merchants began making contracts for futures similar to what is available on the commodity exchanges today. The purchases were made by the buyers before the goods were delivered, thus ensuring a sale when traveling with large loads of commodities along dangerous routes. This would lower the risk of traveling the dangerous route by ensuring the sale. Before the futures contract were implemented, the risk was oftentimes much too high.
- Ancient Sumerian Trade Contracts: During the early Bronze Age, Sumerians would trade sheep pigs, and other commodities. This was their currency, and oftentimes these early traders would create contracts for future trades.
- Trading Rice Tickets in Japan during 17th Century: Many Japanese landlords would send the surplus of rice shipments to storage facilities in the city. They would issue rice tickets on the open market near Osaka which were good for future purchases of rice.
- Chicago Mercantile Market: A brief history on the Chicago Mercantile Market, which was originally called The Chicago Butter and Egg Group.
- Regulators of Commodity Exchange Market: Established organization in 1974 that regulates the Commodities Exchange in the US to protect the public from fraud.
Commodities Key Terms
There are many terms used in commodities that are essential to understanding the basis of the commodities industry. Understanding the key terms used in commodities will give a broad introduction to commodities. These are specialized terms found in phrases unique to this industry.
- Commodity: Offers understanding of commodities and glossary of terms in the commodities industry.
- Hedging: Gives an overview of hedging that takes place in investments and insight to what a hedge fund is and its features.
- Raw Materials: A list of links that provide information on raw materials and their supply and demand models as well as price indices.
- Intercontinental Exchange: A global market operating internet based trades in the futures market
- Cash Commodity: A glossary of terms of terms including Cash Commodity, also known as “actuals”.
- Spot Price: Descriptive outline explaining futures market including explanations of spot price and other key terms.
- Charting: Explanation of terms such as charting, which is a technique of analyzing price movement.
Examples of Commodities
Commodities are essential products that are natural substances the earth produces. They consist primarily of raw materials. Particular commodities are traded or sold when there is a demand for them. The demand is typically what drives the price for a particular commodity.
- Grains: Includes information on the different types of grains and basic commodities marketing for grains.
- Livestock: Information on the world’s livestock commodities including, beef, pork and other livestock commodities.
- Gold: Commodities market for gold and market price determinations.
- Nickel: Article explaining the evaluation and pricing of the worth of nickel.
- Silver: Latest silver news and pricing information and financial trends.
- Copper: Statistics and information about copper include pricing on commodities exchanges.
- Cotton: National Cotton Council of America offers latest cotton futures and activity in the cotton industry.
- Coffee: Commodity links and trade data regarding coffee and its historical performance in the commodities market.
- Cocoa: Brief history on cocoa’s performance and speculations on future performance.
- Crude Oil: Weekly view of crude oil and its worldwide performance on the commodities exchange.
- Coal: Provides information on the commodities trading of coal.
Five Largest Commodity Exchanges
Commodity exchanges began as paper contract transactions. Modern day commodities exchange markets have developed into a complex market. The world’s largest commodities exchanges deal in trillions of dollars of exchange commodities. The highest performing and largest worldwide commodities are listed below.
- New York Mercantile Exchange: The world’s largest physical commodities exchange dealing in futures.
- London Metal Exchange: Offers an exchange platform for metals such as gold, silver, aluminum and copper.
- Chicago Mercantile Exchange: The first US commodities exchange market. The Chicago Mercantile Exchange is still one of the world’s largest commodities platforms.
- Chicago Board of Trade: Founded in 1973 as the first US options exchange, Chicago Board of Trade has a complex trading system and is still a world leader in options trading.
- Shanghai Metals Exchange: This is the largest metal exchange in China and one of the largest in the world.