Stock market
Family VII · Market & styles
Not to be confused with stock index, stock market index, stock index futures.
Stock market is the collective name for the exchanges and trading systems on which company shares change hands. It provides a primary market for new listings and a secondary market for subsequent trading. Prices are discovered continuously through orders submitted by buyers and sellers.
How a stock market operates
A stock market matches buy and sell orders for shares. Orders are routed to an exchange or alternative venue, where a matching engine pairs them by price and time priority. Trades are then cleared and settled through central counterparties and depositories.
Listed companies must meet admission and ongoing disclosure rules set by the exchange and the relevant regulator. Those rules vary by jurisdiction and by market segment. Indices are often calculated from the prices of shares traded on one or more stock markets.
Worked example: a matched trade
An investor places a limit order to buy 200 shares at 25.00. A seller places a limit order to sell 200 shares at 25.00. The venue matches them.
The executed price becomes the latest traded price for that share on that market. The settlement date and any fees depend on the market and broker involved.
Primary and secondary activity
In the primary market, a company issues new shares and receives the proceeds. In the secondary market, investors trade existing shares among themselves; the company generally receives nothing from those transactions. Secondary-market liquidity is what allows holders to convert shares into cash before a company event such as a takeover or delisting.
Often confused with
- stock index
- A stock index is a calculated number that tracks the value of a selected group of shares, not the venue where those shares are traded; the visible sign is that an index has a level and no order book.
- stock market index
- A stock market index is an index whose constituents are shares listed on one or more stock markets, whereas the stock market itself is the trading venue; the visible sign is that the index is quoted as a number while the market is named as an exchange or trading system.
- stock index futures
- Stock index futures are derivative contracts whose price is based on a stock index, not the underlying shares or the market on which they trade; the visible sign is a contract specification with an expiry date and a multiplier.