Stock Exchange: How It Works

How the stock exchange works is actually quite complex.  There are a number of stock exchanges in the world that provide trading services to investors, such as the New York Stock Exchange and NASDAQ.  These stock exchanges are heavily reliant on technology to operate.

The stock exchange is filled with businesses that operate under its stock, which is the original capital paid into or invested in the business.  The driving force of a stock exchange is found in the buying and selling of stocks, which are of course done in order to realize gains and minimize losses, from the standpoint of investors. 

As you can imagine, it takes quite a bit to oversee these processes.  This is the case, as thousands of computers and brokers work together to implement the system.  They operate together to carry out the orders of investors, which are often received electronically.

The systems work together to identify the thousands of orders that come through daily.  The buy and sell orders that are received are matched in order to identify how many shares to buy and sell.  If they don't match up, they represent the spread.  In popular stocks the spread can represent a penny or two; in others, the spread can be much larger.

The various systems run on this very elementary level conceptually.  Of course, the interfaces, matching systems, and quote services are highly complex in the many stock exchanges around the world.  Yet these are the fundamentals to uncovering how the stock exchange works on a regular basis.

Reference: John Dalton, "How the Stock Market Works."