Stock Exchanges Explained
A stock exchange is a regulated marketplace where buyers and sellers trade shares of publicly listed companies. Exchanges provide the infrastructure, rules, and transparency that make it possible for millions of investors to trade trillions of dollars worth of stocks every day.
How Stock Exchanges Work
When you place an order through your broker, it gets routed to an exchange (or alternative venue) where it is matched with a counterparty. If you want to buy 100 shares, the exchange finds someone willing to sell 100 shares at a compatible price. This matching happens electronically in milliseconds.
Exchanges serve three critical functions: they provide liquidity (so you can buy or sell easily), price discovery (establishing the fair market price through supply and demand), and regulation (enforcing listing standards and trading rules).
Major US Stock Exchanges
| Feature | NYSE | NASDAQ |
|---|---|---|
| Founded | 1792 | 1971 |
| Trading model | Hybrid (electronic + designated market makers) | Fully electronic (dealer network) |
| Listed companies | ~2,400 | ~3,700 |
| Total market cap | ~$28 trillion | ~$25 trillion |
| Known for | Large-cap, established companies | Tech, growth, innovative companies |
| Listing fees | Higher | Lower |
| Prestige | Traditional blue-chip status | Tech-forward image |
Other Key Exchanges Worldwide
| Exchange | Location | Notable Feature |
|---|---|---|
| London Stock Exchange (LSE) | United Kingdom | Largest European exchange |
| Tokyo Stock Exchange (TSE) | Japan | Largest Asian exchange |
| Shanghai Stock Exchange (SSE) | China | Restricted foreign access |
| Hong Kong Stock Exchange (HKEX) | Hong Kong | Gateway to Chinese companies |
| Euronext | Pan-European | Spans Paris, Amsterdam, Brussels, Lisbon |
| Toronto Stock Exchange (TSX) | Canada | Heavy in mining and energy |
For more detail, see our global stock exchanges cheat sheet. US investors can access foreign stocks through ADRs.
Listing Requirements
Companies must meet financial and governance standards to list on an exchange. These requirements protect investors by ensuring listed companies are legitimate and financially viable.
| Requirement | NYSE (Initial) | NASDAQ Global Select |
|---|---|---|
| Pre-tax earnings | $10M over 3 years | Various paths available |
| Minimum share price | $4 | $4 |
| Public float | 1.1M shares | 1.25M shares |
| Market value of float | $40M+ | $45M+ |
| Shareholders | 400+ round-lot holders | 450+ round-lot holders |
| Corporate governance | Independent board, audit committee | Independent board, audit committee |
Companies that fail to maintain these standards can be delisted — their stock moves to OTC (over-the-counter) markets where liquidity is much lower.
Trading Hours
| Session | Hours (Eastern) | Notes |
|---|---|---|
| Pre-market | 4:00 AM – 9:30 AM | Lower liquidity, wider spreads |
| Regular session | 9:30 AM – 4:00 PM | Highest liquidity and tightest spreads |
| After-hours | 4:00 PM – 8:00 PM | Lower liquidity, higher volatility |
Most trading volume occurs during the regular session. Extended-hours trading carries additional risks due to lower participation.
How a Trade Actually Happens
Here is the lifecycle of a typical stock trade:
1. Order entry: You place a market or limit order through your broker.
2. Routing: Your broker routes the order to the best available venue (exchange, ECN, or dark pool).
3. Matching: The exchange matches your buy order with a sell order at a compatible price.
4. Execution: The trade is confirmed at the agreed price.
5. Settlement: Shares and cash are exchanged. US stocks settle T+1 (one business day after the trade).
Market Makers and Specialists
Market makers are firms that continuously quote both buy (bid) and sell (ask) prices for a stock, providing liquidity. They profit from the bid-ask spread. On the NYSE, designated market makers (DMMs) are assigned to specific stocks to maintain orderly markets.
The exchange a stock lists on has little impact on your returns. What matters is the stock’s fundamentals, liquidity, and your entry price. Do not pick stocks based on whether they trade on NYSE or NASDAQ — that distinction is mostly cosmetic for investors.
Key Takeaways
- Stock exchanges are regulated marketplaces that facilitate price discovery, liquidity, and transparent trading.
- The NYSE and NASDAQ dominate US markets — NYSE skews toward established firms, NASDAQ toward tech and growth.
- Companies must meet listing requirements to trade on major exchanges; failing standards leads to delisting.
- Regular trading hours are 9:30 AM – 4:00 PM ET; extended sessions carry higher risk and lower liquidity.
- US stock trades settle in T+1 — one business day after execution.
Frequently Asked Questions
What is the difference between NYSE and NASDAQ?
The NYSE uses a hybrid model with designated market makers on a physical trading floor plus electronic systems. NASDAQ is fully electronic with a dealer network. NYSE tends to list large, established companies while NASDAQ is known for tech and growth firms. For investors, both provide deep liquidity and efficient execution.
Can a stock be listed on more than one exchange?
In the US, stocks list on one primary exchange (NYSE or NASDAQ). However, companies can cross-list internationally — a US company might also list on the London Stock Exchange. Foreign companies access US markets through American Depositary Receipts (ADRs).
What happens if a company gets delisted?
Delisted stocks move to OTC (over-the-counter) markets, where trading volume drops dramatically, spreads widen, and institutional investors often must sell their holdings. Delisting usually signals serious financial trouble and is a major red flag for investors.
What is a dark pool?
A dark pool is a private trading venue where large institutional orders can execute without showing up on public exchange order books. This prevents large orders from moving the market price before they are filled. Approximately 40% of US equity volume trades off-exchange.
What are trading hours for US stock exchanges?
Regular trading runs from 9:30 AM to 4:00 PM Eastern Time, Monday through Friday (excluding holidays). Pre-market trading begins as early as 4:00 AM, and after-hours trading runs until 8:00 PM. Extended-hours sessions have lower liquidity and wider bid-ask spreads.