Stock Exchange vs Stock Market
Stock exchange and stock market are two terms that are used commonly, and usually interchanged in conversation. Both the terms refer to a platform in which equity capital is obtained by firms, and are easily misunderstood to refer to the same thing. However, there are subtle differences between these two in terms of the differences between the meanings of the terms ‘exchange’ and ‘market’, and in terms of other distinguishing features. The following article attempts to provide the reader a clear highlight of these subtle differences, and provide information in order to recognise a stock market clearly from a stock exchange and vice versa.
What is Stock Exchange?
A stock exchange is usually made up by an entity, which may be an organisation or a firm, that provides an avenue for trading of stocks through providing services such as highlighting the requirements to be met in listing a shares on an exchange, providing special services and arrangements for individual, large traders, and brokers to trade securities on the exchange. The stock exchange will also act as a platform that helps buyers and sellers to meet, as well as set up sophisticated systems that are able to keep track of the trade volume and price fluctuations. Some of the main stock exchanges are the New York Stock exchange (NYSE), London Stock Exchange (LSE), Toronto stock exchange and Shanghai stock exchange.
What is Stock Market?
Stock market is a generalized term that explains the organized mechanism under which stocks are traded. The stock market consists of the primary and secondary market and is a combination of the over the counter market (OTC), electronic communication networks (ECN), as well as the stock exchange. The stock market is the platform on which shares are issued and traded among investors, providing an avenue for corporations to obtain capital for their expansion purposes and an opportunity for investors to obtain partial ownership of the firm, as well as decision making power in relation to the percentage of ordinary shares held in the company. Stock markets can also be classified by the behaviour of the market participants; a bull market is when market participants are buying stock on anticipation of higher growth, and a bear market is when there is less market activity in anticipation of a market downturn.
What is the difference between Stock Exchange and Stock Market?
The stock exchange is an important component of the stock market. Stocks that are sold in the stock market are listed in stock exchanges in relation to the country in which the stock are sold, such as the NYSE (New York Stock Exchange). While the stock market is the general term that explains all platforms on which stocks are traded in an organized manner, a stock exchange is only an organization that promotes stock trading through the varieties of services offered to facilitate trade. Since stock exchanges are formed by companies, they are operated under a profit motive through providing opportunities for stock trading, whereas stock markets do not operate under any profit motive and are only facilitation for trade to take place.
In a nutshell:
Stock Exchange vs. Stock Market
• The stock market is made up of OTC markets, ECNs and the stock exchange.
• Stock exchanges operate under a stock market, and both are platforms in which traders buy and sell shares, and companies obtain capital required for business purposes.
• A stock market is the common term all forms of stock trading, and the stock exchange is the made up by an organization that promoted stock trading.
• Stock exchanges operate under a profit motive; whereas, stock markets are only general meeting places for stock traders to conduct trading activities.