How does a stock exchange work?

You’ve probably already seen something about stock exchanges and such stocks, or
you hear about them quite often in the newspapers, even if you’re not an investor or
someone in the financial market.

Most countries have only one stock exchange, while the United States has two: the
NYSE and the NASDAQ, both in New York City. In short, exchanges perform and
analyze financial services, which directly impact the price of items that are extremely
necessary for society, such as oil.

In this article, discover what a stock exchange is and also the main terms that we
hear every day on the news — but that often confuse our minds. Come on?
What is a stock exchange?

A stock exchange is a financial trading environment. In it, stocks, debt securities,
futures contracts, commodities, among others, are traded. Below we will explain
what these assets are.

Actions
A stock, or paper, is a piece of a company. Therefore, whoever owns a share is a
partner in a company, being called a shareholder. Companies with shareholders are
called corporations (S.A.) and they can be publicly traded or privately held.
The shares of a S.A. Privately held companies are not traded on a stock exchange.
The shares of a S.A. publicly traded, are.

Shares are freely traded on stock exchanges. They can be purchased from the
company that issued them or from other investors. When buying a share in a
company, the investor gives it money, in exchange for owning a “piece” of it.
This money can be used to buy equipment, pay employees, do research, among
other things.

Dividends

The dividend is a kind of shareholder's “salary”. It is an amount paid by the company
periodically to the shareholder, for each share he owns. They can be paid every 3
months, 6 months, 1 year etc.

The dividend is a form of profit for the shareholder, but he can also profit by selling
the stock when it is more valued than when he bought it.

Commodities

Commodities are “raw materials that are poorly processed and have similar
characteristics regardless of the producer”, thus being able to have a standard price,
all over the world. This is the case with crude oil, coffee bags, gold etc.

Commodities can be classified as follows:

● Financial: debt securities, carbon credits and currencies such as the dollar;
● Agricultural: soy, arabica coffee, corn, rice and sugar;
● Minerals: iron, gold, oil and natural gas.
This is a way of classifying them and these are some examples of commodities.

Circuit breaker

The circuit breaker is a stoppage of the stock market, an interruption of trading. If the
American stock market accumulates a drop of 10% in relation to the previous day, it
will be paralyzed for 30 minutes. In the event of a drop of 15%, for 1 hour, but in the
case of 20%, the stop time is indefinite, and the exchange is responsible for setting a
reopening deadline.

Future contract

A future contract is a purchase and sale agreement to be carried out in the future, on
a stipulated date at a specified price. For example, 3 months from now you will buy 1
ton of iron at a price X from a certain seller. This allows the buyer and seller of the
commodity not to be subject to price variations, as it is not known with certainty what
the price of that product will be on the stipulated date.

Home broker

The home broker is an electronic system that is a computer program, which gathers
quotes, and shares that the investor already owns, among other things. This system
gathers a lot of important information and even allows the investor to give orders
without having to make a phone call to the stock exchange, as it used to be.

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