Stock and Commodities Exchanges

A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, derivatives, pooled investment products and bonds.

To be able to trade a security on a certain stock exchange, a company must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.

A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors that, as in all free markets, affect the price of stocks. The trading floor of any stock market is very noisy and pressure is very high especially during the period of volatility. Bear markets are more challenging for traders than bull markets.

When an investor buys a share, he or she uses the service of a specialist company or broker. Each share of corporate stock represents partial ownership of the business. When people buy the shares, they become shareholders. People holding shares of corporations hope to realize a financial gain from these assets. As part owners, shareholders are entitled to any profits the corporation makes.

Shareholders can make money by receiving dividends, paid as a proportion of a company's annual profits, and when the value of their shares increases. But shareholders do not necessary receive their share of the company's profit in cash. The corporation may choose to retain earnings or pay them out to shareholders as dividends.

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore, the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

A commodities exchange is an exchange where various commodities and derivatives products are traded. Most commodity markets across the world trade in agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, oil, metals etc) and contracts based on them. These contracts can include spot prices, forwards, futures and options on futures.

2. Work in pairs. Read carefully each paragraph of the text and pick up the sentences conveying the main idea of the paragraph. Make them as short as possible omitting less important words. Divide long sentences into shorter ones, if necessary. Write them down to make up the summary of the text. (Look at Appendix 1 on page 172 to check).

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