Exchange (organized market)
Encyclopedia
An exchange is a highly organized market where (especially) tradable securities, commodities, foreign exchange, futures, and options contracts are sold and bought.
to cover defaults, or over-the-counter
(OTC), where there is typically less protection against counterparty risk from clearinghouses although OTC clearinghouses have become more common over the years, with regulators placing pressure on the OTC markets to clear and display trades openly.
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 contract
s on commodities. Exchange traded forward contracts are called futures contract
s. These commodity exchange
s later started offering future contracts on other products, such as interest rates and shares, as well as option
s contracts. They are now generally known as futures exchange
s.
For details see:
.
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 clearinghouseClearing house (finance)
A clearing house is a financial institution that provides clearing and settlement services for financial and commodities derivatives and securities transactions...
to cover defaults, or over-the-counter
Over-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
(OTC), where there is typically less protection against counterparty risk from clearinghouses although OTC clearinghouses have become more common over the years, with regulators placing pressure on the OTC markets to clear and display trades openly.
Exchanges can be subdivided:
- by objects sold:
- stock exchangeStock exchangeA stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
or securities exchange - commodities exchangeCommodities exchangeA commodities exchange is an exchange where various commodities and derivatives products are traded. Most commodity markets across the world trade in agricultural products and other raw materials and contracts based on them...
- foreign exchange marketForeign exchange marketThe foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
- is rare today in the form of a specialized institution
- stock exchange
- by type of trade:
- classical exchange - for spot trades
- futures exchangeFutures exchangeA futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
or futures and options exchange - for derivatives
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 contract
Forward contract
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed today. This is in contrast to a spot contract, which is an agreement to buy or sell an asset today. It costs nothing to enter a...
s on commodities. Exchange traded forward contracts are called futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
s. These commodity exchange
Commodity exchange
Commodity exchange may refer to:* Commodities exchange, any exchange where various commodities and derivatives products are traded.* Commodity markets, for the markets trading on commodities in general....
s later started offering future contracts on other products, such as interest rates and shares, as well as option
Option (finance)
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the...
s contracts. They are now generally known as futures exchange
Futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
s.
For details see:
- stock exchangeStock exchangeA stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
(securities exchange), List of stock exchanges, :Category:Stock exchanges - commodity exchangeCommodity exchangeCommodity exchange may refer to:* Commodities exchange, any exchange where various commodities and derivatives products are traded.* Commodity markets, for the markets trading on commodities in general....
(futures exchangeFutures exchangeA futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
), List of futures exchanges, :Category:Futures exchanges - foreign exchange marketForeign exchange marketThe foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
History
The name bourse comes from the place where the traders met. It was the house of Ter Beurze in BrugesBruges
Bruges is the capital and largest city of the province of West Flanders in the Flemish Region of Belgium. It is located in the northwest of the country....
.