Stock exchange

A stock exchange does two jobs. First, it lets companies raise money by listing and selling new shares to the public, usually through an initial public offering; this is the primary market. Second, it runs a continuous secondary market in which investors buy and sell existing shares among themselves. Orders are matched electronically in an order book, prices are published, and completed trades pass to clearing and settlement systems so that shares and cash change hands reliably. Listed companies must meet admission rules and publish regular financial information.

Private investors do not deal on an exchange directly; they place orders through a broker with access to it. When you buy a share on an exchange, your money goes to another investor, not to the company, which receives money only when it issues new shares. The exchange provides price transparency, liquidity and rules that reduce the risk of dealing with an unknown counterparty. Much trading now also takes place on alternative venues, such as multilateral trading facilities in Europe and alternative trading systems in the US, but the exchange where a company is listed usually remains the reference point for its price.