Exchanges

These derivatives products that are traded via specialized Derivatives exchanges or other exchanges. A derivatives exchange acts as an intermediary to all related transactions, and takes Initial margin from both sides of the trade to act as a guarantee.
For instance, hybrid instruments such as convertible bonds and/or convertible preferred may be listed on stock or bond exchanges. Also, warrants (or "rights") may be listed on equity exchanges.


  • Lenders - Individual Companies

  • Intermediatiaries - Banks, Pension Funds, Mutual Funds, Insurance Companies

  • Markets - Stock Exchange, Money Markets, Bond Market, Interbank

  • Borrowers - Individuals, Companies, Government, Municipalities


  • Primary Market - Where companies and governments can sell new securities to investors to raise cash. The first time that a security is issued. New issues of equities, bonds or right issues

  • Secondary Market - Where the investors can buy and sell the securities among themselves. Any buying or selling after the security has been issued

  • Third Market - Involves the trading of listed securities in the OTC market

  • Fourth Market - Direct institution-to-institution block trades


An exchange is considered to be an "order driven" market whereas over the counter is considered to be a "quote driven" market
Most exchanges offering futures contracts now also offer options on these contracts
Britains domestic stock exchange is the third largest stockmarket after the United States and Japan.


Only firms that are members of the exchange can transact business on the exchange. This is referred to as "owning a seat".
"Specialists" are there to maintain an orderly market and to provide liquidity to the market place. The specialists make money by making a market with a spread between the bid and ask price.


Stock exchanges are a good example, companies can raise money by issueing share to investors and then existing shares can be bought and sold freely.


Equity and FX markets are extremely electronic


Exchanges have one clear advantage and that is they have security of a clearing house




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