The stock market is a medium for stock transactions between buyers and sellers. It is made up of a primary and secondary market. The primary market presents the initial public offering (IPO) where companies first release new shares to the public, and transactions are directly between buyers and the company itself. The subsequent trading of these pre-issued stocks occurs in the secondary market among investors. References to the stock market are often pointed specifically to the activity of the secondary market.
Buyers and sellers alike participate in stock markets to increase their earnings. Companies use stock markets to raise capital by selling shares of their business to investors. Similarly, investors use the stock market to buy into a portion of a company’s expected future profits.
A stock exchange facilitates stock transactions using a highly organized electronic or open-outcry system. Electronic exchanges use networked computers to organize incoming and outgoing trades. Potential buyers and sellers submit their bids and asks, and the electronic exchange then matches them and executes the trade. An open outcry exchange, on the other hand, uses a physical trading floor where traders gather, coordinate, and carry out trades in person. In the open outcry system, traders submit verbal bids and asks.
An exchange offers several advantages. It provides a transparent and secure trading environment because prices are publicly listed, so all buyers and sellers are met with the same pricing figures. In addition, an exchange acts as a clearinghouse. It mitigates risk by ensuring both ends of the transaction are carried out as agreed upon.
Over-the-counter (OTC) market
The OTC market, also referred to as an off-exchange market, has no formal location, electronic or otherwise, and is less regulated than an exchange. Transactions are arranged informally using multiple means of communication. OTC bid and ask prices are published daily in a document referred to as pink sheets, which is why OTC stocks are also called pink sheet securities. However, because these stocks are unlisted and trade interaction is conducted through various means, prices may not be publicized and may actually differ between executions.
Different exchanges list companies that are in different stages of development. Major exchanges will likely list more established companies than minor exchanges, which may cater more to emerging organizations.
Here's a list of some of the common North American exchanges:
Click on the exchange you would like to learn more about.