Every day, money moves around the Globe. Most of this money moves through the stock markets. This article will utilize a simple analogy to explain what Stock Exchanges are, and how they’re used to move around Trillions of Dollars, on a daily basis.
A Stock Exchange is like your usual grocery store. You walk in; pick the products you want and buy them at the current price. The grocery store consists of shelves where farmers and other suppliers can place their products in the hopes of you purchasing them at a price. The grocery store has promised its suppliers and the Government to maintain a certain store temperature for the products, and to not sell rotten or expired foods to the customers. The store will also provide a clean and safe environment for the customers to walk around as they’re shopping.
Stocks are products that are supplied by Corporations. A stock represents a company; just like a tomato from Trader Joe’s represents the farm it originated from. A Stock Exchange is like the grocery store because it also promises the Corporation and the Government to maintain a safe environment where investors have access to all the products at the current market price, and that no rotten stocks will be present.
The way the Stock Exchange does this is by having certain standards. One example is that it requires a Corporation to have total annual revenues of at least $75 Million, or for a company’s stock price to be valued over $3 per share and much more.
Just like a grocery store can remove a product from their shelves, a Stock Exchange can stop providing investors the ability to purchase a specific stock (if they can’t meet their standards).
As you know, there are good tomatoes and rotten tomatoes, but if you walk into a respected grocery store, chances are slim-to-none that you will find rotten tomatoes sitting on their shelves for a long time.
The United States Government provides clear-cut financial regulations for Stock Exchanges, and the main exchanges that it uses to reflect the US Economy are the NYSE (New York Stock Exchange) and NASDAQ Stock Exchange. These regulations make it so grocery stores don’t sell you rotten tomatoes.
Keep in mind that just like a grocery store includes a markup for their products, a Stock Exchange includes fee.
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