What Is an Exchange?
A stock, equity, or crypto exchange is an organized marketplace that facilitates the buying and selling of stocks, bonds, commodities, derivatives, and other financial instruments. The exchange serves as a platform for traders, investors, institutions, hedgers, floor traders, electronic traders, and other participants to buy and sell financial instruments.
How Exchanges Work
The exchange acts as a middleman, ensuring that the trades are executed in a fair and orderly manner. When a buyer and seller agree on a price, the exchange matches their trade and records the transaction. The exchange then settles the transaction by transferring ownership of the financial instrument and the funds involved in the trade.
The exchange is typically regulated by a government or other regulatory body to ensure that trading is conducted in a fair and transparent manner. This may involve setting rules and regulations governing the types of financial instruments that can be traded on the exchange, the minimum requirements for listing a financial instrument, and the behavior of market participants.
Some exchanges are physical locations where traders gather to trade in person, while others are electronic platforms where trades are conducted online. In either case, the exchange provides a transparent and efficient marketplace for buyers and sellers to come together and trade financial instruments.
Types of Exchanges
There are several types of exchanges, including stock exchanges, futures exchanges, cryptocurrency exchanges, over-the-counter (OTC) markets, and commodities exchanges.
Stock Exchanges
A stock exchange is a marketplace where stocks, bonds, mutual funds, exchange-traded funds (ETFs), options, futures, and other financial instruments are bought and sold. It is a regulated marketplace where companies can go public by issuing shares to the public in order to raise capital, and investors can buy and sell these shares among themselves.
Here are the top 20 stock exchanges in the world by trading volume as of March 2023, along with estimates of their average daily trading volumes:
| Exchange | Daily Trading Volume |
|---|---|
| New York Stock Exchange (NYSE) | $50-60 billion |
| NASDAQ | $20-30 billion |
| Tokyo Stock Exchange | $25-30 billion |
| Shanghai Stock Exchange | $20-25 billion |
| Hong Kong Stock Exchange | $15-20 billion |
| Euronext | $10-15 billion |
| London Stock Exchange | $10-15 billion |
| Shenzhen Stock Exchange | $10-15 billion |
| TMX Group | $5-10 billion |
| Bombay Stock Exchange | $5-10 billion |
| National Stock Exchange of India | $5-10 billion |
| Deutsche Börse | $5-10 billion |
| BME Spanish Exchanges | $5-10 billion |
| SIX Swiss Exchange | $5-10 billion |
| Australian Securities Exchange | $5-10 billion |
| Korea Exchange | $5-10 billion |
| Johannesburg Stock Exchange | $2-5 billion |
| Moscow Exchange | $2-5 billion |
| BM&FBOVESPA | $2-5 billion |
| Taiwan Stock Exchange | $2-5 billion |
Futures Exchanges
A futures exchange is a marketplace where futures contracts are bought and sold. Futures contracts are standardized agreements between two parties to buy or sell a specific commodity, financial instrument, or currency at a future date and at a predetermined price.
Here are the top 10 futures exchanges in the world by trading volume as of March 2023, along with estimates of their average daily trading volumes:
| Exchange | Daily Trading Volume |
|---|---|
| CME Group (Chicago Mercantile Exchange) | $100-150 billion |
| ICE Futures Europe (Intercontinental Exchange) | $100-150 billion |
| Eurex | $50-100 billion |
| Shanghai Futures Exchange | $50-100 billion |
| Tokyo Commodity Exchange | $15-20 billion |
| Hong Kong Futures Exchange | $10-15 billion |
| Dalian Commodity Exchange | $10-15 billion |
| Zhengzhou Commodity Exchange | $5-10 billion |
| Singapore Exchange (SGX) | $5-10 billion |
| Moscow Exchange (MOEX) | $2-5 billion |
Cryptocurrency Exchanges
A cryptocurrency exchange is a digital marketplace where cryptocurrencies are bought, sold, and traded. Cryptocurrencies are digital or virtual tokens that use cryptography to secure and verify transactions and to control the creation of new units.
Here are the top 10 cryptocurrency exchanges in the world by trading volume as of March 2023, along with estimates of their average daily trading volumes:
| Exchange | Daily Trading Volume |
|---|---|
| Binance | $70 billion |
| Huobi Global | $70 billion |
| Coinbase Pro | $50 billion |
| Bitfinex | $30 billion |
| Kraken | $25 billion |
| BitForex | $20 billion |
| OKEx | $18 billion |
| FTX | $16 billion |
| Upbit | $14 billion |
| Bitstamp | $13 billion |
OTC (Over-the-Counter) Markets
An OTC (over-the-counter) exchange, also known as a decentralized market, is a decentralized network that allows buyers and sellers to trade securities, derivatives, currencies, and other financial instruments without the need for a centralized exchange. Unlike traditional exchanges, OTC exchanges operate without a physical location or centralized order book.
As such, OTC trading volume is often difficult to accurately measure or compare across platforms. However, here are some of the most well-known OTC trading desks or brokers, along with some estimated trading volumes as of March 2023:
| Market | Estimated Monthly Trading Volume |
|---|---|
| Genesis Trading | $2-3 billion |
| Circle Trade | $1-2 billion |
| Cumberland | $1-2 billion |
| B2C2 | $500 million to $1 billion |
| SFOX | $500 million to $1 billion |
| itBit OTC Desk | $250-500 million |
| XBTO | $100-250 million |
| QCP Capital | $100-250 million |
| Galaxy Digital Trading | $100-250 million |
| DV Chain | $50-100 million |
Commodities Exchanges
A commodities exchange is a marketplace where various commodities, such as agricultural products, metals, energy products, and other raw materials, are bought and sold. These exchanges provide a centralized platform for producers, buyers, and traders to buy and sell commodities at a market-determined price.
Here are the top 10 commodities exchanges in the world by trading volume as of March 2023, along with estimates of their average daily trading volumes:
| Exchange | Daily Trading Volume |
|---|---|
| Chicago Mercantile Exchange (CME) | $150-200 billion |
| Intercontinental Exchange (ICE) | $70-120 billion |
| Shanghai Futures Exchange | $50-100 billion |
| New York Mercantile Exchange (NYMEX) | $20-30 billion |
| Multi Commodity Exchange of India (MCX) | $10-15 billion |
| Dubai Mercantile Exchange (DME) | $5-10 billion |
| Zhengzhou Commodity Exchange | $5-10 billion |
| Tokyo Commodity Exchange (TOCOM) | $15-20 billion |
| Dalian Commodity Exchange | $10-15 billion |
| London Metal Exchange (LME) | $3-5 billion |
It’s worth noting that trading volume can vary significantly day to day, depending on factors such as market sentiment, economic news, and global events. Additionally, the trading volumes listed here may include a variety of different financial instruments, such as stocks, bonds, and derivatives. As such, these are estimated numbers to illustrate the relative sizes of each exchange.
There are many more exchanges in the world than what is listed here. The number of exchanges can vary depending on how they are defined and what types of financial instruments they trade. For example, some countries may have regional exchanges or commodity exchanges that are not as well-known on a global scale. Furthermore, new exchanges can be established and existing ones can merge or go out of business, which means the number of exchanges can change over time.
The Bottom Line
In order to understand exchanges, a new investor should familiarize themselves with the different types of exchanges, the different participants, the role of market makers, the regulations governing exchanges, and the different products and services offered. They should also become familiar with the trading platforms, order types, and other tools used to trade stocks, bonds, derivatives, and other financial instruments.
