Exchange (organized market)

Exchange (organized market)

An exchange (or bourse) is a highly organized market where (especially) tradable securities, commodities, foreign exchange, futures, and options contracts are sold and bought.

Contents

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[1] although OTC clearinghouses have become more common over the years, with regulators placing pressure on the OTC markets to clear and display trades openly.[2][3]

Exchanges can be subdivided:

In practise, 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:

History

The name bourse comes from the place where the traders met. It was the house of Ter Beurze in Bruges.

See also

Notes

  1. ^ Stock Exchanges are the most publicly recognized places for buying and selling shares. They are easily the single most important component of the secondary market for corporate shares. Over-the-Counter Options. About.com.
  2. ^ OTC Clearing 'FIX'ed Up!. Fix Global.
  3. ^ A Focus on OTC Clearing Innovation. IntercontinentalExchange.

References

External links


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