How Does the Stock Exchange Work?
Imagine, on a street market you discover something you have been looking for. You bargain with the seller – what is the object worth, what are you willing to pay and what amount is the seller ready to accept? Once you have struck a deal, you pay for the product and take your new treasure home.
The stock exchange works in a similar way. There is only one significant difference: you, as the buyer, do not get in direct contact with the seller. You could compare the scenario with a wholesale market, where the end customer hardly ever trades with the seller. The producer sells its goods to the wholeseller, who then sells to the greengrocer, and this is where the end customers buy their greens from.
The stock exchange does not trade itself, in the same way as the operator of a street market is not actually selling things there. It merely provides the infrastructure. The marketplaces of the Frankfurt Stock Exchange – i.e. the cash market with floor trading in Frankfurt and the fully electronic trading system Xetra® – rank among the largest marketplaces worldwide. Trading, however, is conducted by the market participants.
In traing on an electronic platform, brokers do not meet to conduct business. Instead, a computer system automatically matches buy and sell orders.