A trading post for stocks
A stock exchange is simply a marketplace where traders buy and sell stocks. (Some other types of investments—like exchange-traded funds (ETFs) and notes (ETNs)—are also traded on stock exchanges.)
Some exchanges have physical locations—for example, the New York Stock Exchange (NYSE) located on Wall Street in Manhattan. But some exchanges are completely electronic, like the Nasdaq Stock Market.
Countries and regions around the world have their own exchanges, like the Tokyo Stock Exchange.
Stocks can be "listed"—offered for trading—on one stock exchange or on multiple exchanges.
How exchanges work
On a physical exchange like the NYSE, "market makers" who specialize in a particular stock will buy and sell that stock to brokers. The trading floor functions like an auction house, with bid and offer prices changing throughout the trading day.
In the U.S. stock market, trading sessions are held Monday through Friday (excluding certain holidays) from 9:30 a.m. to 4 p.m., Eastern time.
Electronic exchanges work in a similar way, except that it's computers that connect buyers and sellers.
Listing requirements
Each exchange sets requirements for the stocks traded there. For example, stocks traded on the NYSE must, among other things, have a share price of at least $4 and a market capitalization of at least $4 million.
Other types of requirements involve the way the company reports its financial information and the kinds of board members the company has.
If a company can't maintain the requirements for an exchange, it will be "delisted." But stocks that don't trade on an exchange can still be traded "over the counter," or through a network of dealers.
Over-the-counter (OTC) markets
Stocks can be traded over the counter if they don't meet an exchange's requirements or if the company issuing the stock wants to avoid the costs associated with meeting those requirements. ADRs also often trade over the counter.
Stocks traded over the counter may be very similar to those traded on the exchanges. Some, however, are different—they have very low share prices ("penny stocks") and minimalliquidity(buyers and sellers are harder to come by so orders may not be filled right away or even at all).
