While stock exchanges all share the common goal of providing a marketplace where investors can buy and sell stocks, each exchange has its own unique characteristics, niche and history. An overview of six major exchanges and the benchmark indexes that represent them provides insight into the diverse global marketplace.
TUTORIAL: Top Stock Picking Strategies

Established in 1875, the Bombay Stock Exchange (BSE) is the oldest stock exchange in Asia. In its earliest days, the exchange was an open-air market operating under the shade of banyan trees. The exchange moved indoors in 1874. In 1995 it entered the digital age, replacing the rowdy shouting on the market floor with the quiet hum of computers.

With more than 5,000 listed companies, the BSE has the highest number of listings on any exchange in the world. It includes large, mid-size and small companies. Performance of the BSE is tracked using the Bombay Exchange Sensitive Index, commonly referred to as "Sensex." Similar to the Dow Jones Industrial Average in the United States, Sensex is made up of 30 large companies across a variety of major industries. Sensex is calculated using a free-float adjusted market-capitalization methodology. Free floating indexes include only shares that are readily available for trading in the marketplace. Market-capitalization weighted indexes weigh individual components according to their market capitalization. Under this methodology, larger companies carry a larger percentage weighting. The value of a capitalization-weighted index can be computed by adding up the collective market capitalizations of its members and dividing it by the number of securities in the index.

For example, if a company's market capitalization is $1 million and the market capitalization of all stocks in the index is $100 million, then the company would be worth 1% of the index. The alternative to weighting by market cap is a price-weighted index such as the Dow Jones Industrial Average. (Emerging markets like India are fast becoming engines for future growth. Find out how to get in on the ground floor. See The Indian Stock Market 101.)

The Tokyo Stock Exchange (TSE) was established in 1878. It is one of the most influential exchanges in the world. The TSE moved to electronic trading in 1999. Performance of the TSE is tracked using the Tokyo Stock Price Index (TOPIX). The TOPIX is a free-float adjusted market capitalization weighted index that tracks approximately 1,700 domestic companies. These companies represent what is known as the First Section, which makes up the bulk of the exchange's constituents and consists of large-capitalization companies. The TOPIX has a second section that represents approximately 450 mid-cap companies and a Mothers section (market of the high-growth and emerging stocks) representing around 200 firms.

Hong Kong
Hong Kong's first formal stock market, the Association of Stockbrokers in Hong Kong, was established in 1891. It officially took the name Hong Kong Stock Exchange in 1914 and is among the largest exchanges in Asia. Approximately 1,450 companies are listed on the exchange. Trades have taken place electronically since 1986.

The Hong Stock exchange is represented by the Hong Kong Stock Exchange Hang Seng Index, a free-float adjusted, capitalization-weighted index of approximately 40 companies. The Hang Seng Index is maintained by a subsidiary of Hang Seng Bank, and has been published since 1969. The index aims to capture the leadership of the Hong Kong exchange, and covers approximately 65% of its total market capitalization. The Hang Seng members are also classified into one of four sub-indexes based on their main lines of business including commerce and industry, finance, utilities and properties.

The Hang Seng is the most widely quoted barometer for the Hong Kong economy. Because of Hong Kong's status as a special administrative region of China, there are close ties between the two economies and many Chinese companies are listed on the Hong Kong Exchange.

The London Stock exchange, which began formal operation in 1773, traces its roots back to 1698 when John Castaing began to keep a list of stock and commodity prices. Today, it is the largest stock exchange in Europe. It is also the most international of all stock exchanges offering investors the ability to purchase securities from more than 50 counties. The exchange moved to electronic trading in 2007.

Stocks that trade on the London Stock Exchange are represented by the Financial Times Stock Exchange (FTSE) 100 Share Index, also known as the "Footsie." The FTSE's contains the 100 top blue-chips stocks that trade on the exchange. Like most of its peers, the FTSE is a free-float, market capitalization weighted index. (Learn how British coffeehouses helped give rise to the juggernaut that is the NYSE. Check out The Birth Of Stock Exchanges.)

New York
The New York Stock Exchange (NYSE), also known as the "Big Board," traces its roots back to 1792 when 24 brokers and merchants signed the Buttonwood Agreement, which set up securities trading on a commission basis. The NYSE is the world's largest stock exchange in terms of market capitalization, with the market capitalization of its listed stocks firms coming in at more than $12 trillion dollars. One of the more sobering and notable dates in the exchange's long history is September 16, 1920. On that date, a bomb was detonated outside the NYSE building. The building still bears the scars of the explosion, which killed 33 people and injured more than 400.

The NYSE is a blend of the old-fashioned open outcry auction with traders shouting orders and modern electronic trade execution. Each stock on the exchange has a specialist who oversees and facilitates all trades of that stock. Trades can be made via shouting orders to the specialist or by electronic orders.

Performance of the NYSE is tracked using the NYSE Composite Index, which includes some 1,600 U.S.-based firms and more than 350 foreign companies. The New York Stock Exchange describes the NYSE Composite Index as "a useful benchmark for investors who prefer to track global market performance in a single market." It is a free-float, market capitalization-weighted index.

Developed in 1971, the National Association of Securities Dealers Automated Quotations is the world's first electronic stock market. What began as a forum to trade smaller stocks has grown to become the highest volume stock exchange in the world.

Stocks that trade on the Nasdaq exchange are represented by the Nasdaq Composite Index, a market capitalization-weighted index. One of the index's key characteristics is its volatility, which has a direct relationship to the significant number of technology companies traded through the exchange. (Learn some of the important differences in the way they operate and the securities that trade on them. See The NYSE And Nasdaq: How They Work.)

A World of Choice
The Bombay, Tokyo, Hang Seng, London, New York and Nasdaq are some of the most widely recognized stock exchanges in the world. They are also just a few of the many exchanges through which buyers and sellers come together to trade securities. Other notable exchanges include regional facilities, such as the Toronto, Boston and Philadelphia Stock Exchanges. Of course some stocks and other investments - such as bonds - can be bought and sold without going through an exchange. The number of innovative ways to invest money isn't quite as prolific as the number of investments available for purchase, but there is certainly no shortage of venues through which you can put your money to work or seek to make a fortune.

Related Articles
  1. Options & Futures

    Getting To Know The Stock Exchanges

    Here are the answers to all the questions you have about stock exchanges but are too afraid to ask!
  2. Trading Systems & Software

    The Global Electronic Stock Market

    The way trading is conducted is changing rapidly as exchanges turn toward automation.
  3. Bonds & Fixed Income

    History Of The Toronto Stock Exchange

    Find out how the third-largest stock exchange in North America came to be.
  4. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  5. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  6. Stock Analysis

    An Introduction To The Indian Stock Market

    Most trading in the Indian stock market occurs through its two exchanges – the Bombay Stock Exchange and the National Stock Exchange.
  7. Investing Basics

    5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  8. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  9. Active Trading

    10 Steps To Building A Winning Trading Plan

    It's impossible to avoid disaster without trading rules - make sure you know how to devise them for yourself.
  10. Investing

    How to Spot Secular Bull Markets vs. Secular Bear Markets

    A guide to identifying secular bull and bear markets.
  1. How do financial advisors execute trades?

    Today, almost every investor invests through online brokerage accounts. Investors often believe that their trades are directly ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  4. How autonomous are special administrative regions?

    When most people think of special administrative regions, or SARs, they are referring to Hong Kong and its relationship with ... Read Full Answer >>
  5. Can a special administrative region declare autonomy?

    Special administrative regions, or SARs, namely Hong Kong and Macau, do not declare autonomy so much as they are granted ... Read Full Answer >>
  6. What countries are currently considered to be special administrative regions?

    The two countries, both under the overall sovereignty of the People's Republic of China, designated as special administrative ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center