Exchange (organized Market) - Description

Description

Exchanges bring together brokers and dealers who buy and sell these objects. These various financial instruments can typically be sold either through the exchange, typically with the benefit of a clearinghouse to cover defaults, or over-the-counter (OTC), where there is typically less protection against counterparty risk from clearinghouses although OTC clearinghouses have become more common over the years, with regulators placing pressure on the OTC markets to clear and display trades openly.

Exchanges can be subdivided:

  • by objects sold:
    • stock exchange or securities exchange
    • commodities exchange
    • foreign exchange market - is rare today in the form of a specialized institution
  • by type of trade:
    • classical exchange - for spot trades
    • futures exchange or futures and options exchange - for derivatives

In practice, futures exchanges are usually commodity exchanges, i.e. all derivatives, including financial derivatives, are usually traded at commodity exchanges. This has historical reasons: the first exchanges were stock exchanges. In the 19th century, exchanges were opened to trade forward contracts on commodities. Exchange-traded forward contracts are called futures contracts. These commodity exchanges later started offering future contracts on other products, such as interest rates and shares, as well as options contracts. They are now generally known as futures exchanges.

For details see:

  • stock exchange (securities exchange), List of stock exchanges, Category:Stock exchanges
  • commodity exchange (futures exchange), List of futures exchanges, Category:Futures exchanges
  • foreign exchange market

Read more about this topic:  Exchange (organized Market)

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