Meaning of Stock Exchange
Stock exchanges look back on a long tradition. The oldest stock exchange was founded in 1409 in Bruges, Belgium. The first German stock exchanges are the Augsburg Stock Exchange and the Nuremberg Stock Exchange, founded in 1540. The Frankfurt Stock Exchange, today the most important stock exchange in Germany and also one of the most important stock exchanges worldwide, was founded in 1585. Exchanges are not only used for trading in securities, but also for organized trading in almost all products. In addition to stock exchanges, there are also special exchanges for raw materials, foreign exchange and in London even a wine exchange, the Liv-ex. For example, CO2 certificates are traded on the European Energy Exchange (EEX) based in Leipzig.
- Exchanges serve to trade a commodity – be it a commodity, stocks or bonds – in a regulated market environment.
- The aim of exchange trading is not only the transaction itself, but also the creation of transparency with regard to pricing.
- Trading on the stock exchanges in Germany is controlled by the Bafin.
How the stock exchange works
Exchanges serve to trade a commodity – be it a commodity, stocks or bonds – in a regulated market environment. The value results from supply and demand. The emphasis here is on the term “regulated market environment”, as the exchange, in contrast to a classic marketplace, follows certain rules for trading. In order for a share to be traded on the stock exchange, the company must meet certain requirements that are regulated in the German Stock Exchange Act (BörsG). According to abbreviationfinder, SX stands for Stock Exchange.
The aim of exchange trading is not only the transaction itself, but also the creation of transparency with regard to pricing. Floor trading, the physical presence of stock brokers in the trading room, was completely replaced in Frankfurt by XETRA trading, computer trading, in 2011.
Stock exchanges in Germany
Trading on the stock exchanges in Germany is controlled by the Bafin. In addition to the Frankfurt Stock Exchange, there are also several regional stock exchanges in Germany. After the closure of the Bremen Stock Exchange, these are still the following marketplaces:
- Berlin Stock Exchange
- Düsseldorf Stock Exchange
- Joint Börsen AG Hamburg-Hanover (including the Hanseatic Stock Exchange as part of BÖAG Börsen AG)
- Munich Stock Exchange
- European Energy Exchange, Leipzig
- Stuttgart Stock Exchange: The Stuttgart Stock Exchange offers investors the opportunity to trade shares in open-ended investment funds. Under certain circumstances, this can be cheaper than purchasing with a front-end load.
- Tradegate Exchange, Berlin: Tradegate Exchange was the first exchange for fully electronic off-exchange securities trading. Over-the-counter trading enables buyers and sellers to come into direct contact with one another.
The stock market indices
When investors think of the term stock exchange, they primarily think of trading in stocks. The most important indices are therefore also the stock indices. In Germany these are the DAX 30, the M-DAX and the S-DAX. The DAX 30 is made up of the 30 largest German companies, the M-DAX from the next 50 largest companies in the ranking. In the S-DAX, in turn, the following 50 companies belonging to the M-DAX, so-called small caps or smaller public limited companies, are listed. The TecDAX comprises 30 of the 50 largest technology companies.
Indices generally reflect investors’ expectations of a country’s future economic performance. In the US, the best-known indices are the S&P 500 and the Dow Jones Industrial. On the Paris stock exchange, the CAC 40 reflects the performance of the 40 largest companies in France, in Great Britain the FTSE 100 performs this task. The Eurostox 50 indexes the performance of the 50 largest companies within the euro zone.
Exchange trading cannot be done by every investor himself, but requires the involvement of an official stockbroker. The purchase order for a security is forwarded via the custodian bank and processed in the now fully electronic trading system XETRA. The broker, in turn, virtually brings buyers and sellers of a share together, provided they both have the same asking price. In addition to the brokerage fee for the bank, there is also a commission for the broker when trading securities.
The five most important stock market events
- On October 28, 1929, the New York Stock Exchange collapsed: the Great Depression had hit the stock exchanges. It was not “Black Friday”, as is often reported today, on October 25 of this year the Dow Jones Industrial Index even rose again.
- In 1997 the bubble of artificially high foreign exchange rates in emerging markets in Asia. The devaluation of Bath in Thailand was the trigger. The prices on the Hong Kong stock exchange fell by 40 percent.
- Technology stocks had soared up to March 2000 that ended in a bubble. When the dotcom bubble burst, investors lost over 200 billion euros.
- Due to the financial crisis, prices slipped massively in 2008. Individual stocks were repeatedly suspended from trading, and the Moscow Stock Exchange kept closing its doors for a few days.
- In the spring of 2014, the DAX 30 reached its all-time high of over 10,000 points for the first time – proof that the stock market keeps going up in the end.