Where Buyers Meet Sellers
Every trade you will ever make passes through a stock exchange. Whether you buy one share of Apple on your phone or a hedge fund buys a million shares of Microsoft, the transaction flows through the same infrastructure. Understanding how exchanges work is understanding the marketplace you are entering every time you click “buy.”
A stock exchange is simply an organized marketplace where buyers and sellers come together to trade securities. Its purpose is to provide transparency (everyone can see prices), liquidity (you can buy and sell quickly), and fairness (rules prevent manipulation).
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.”
Seth Klarman, Baupost Group
The Two Giants: NYSE and NASDAQ
New York Stock Exchange (NYSE)
Founded in 1792 under a buttonwood tree on Wall Street, the NYSE is the world’s largest stock exchange by market capitalization (over $25 trillion). It uses a hybrid model combining electronic trading with human market makers called “Designated Market Makers” (DMMs) who are physically present on the trading floor. The NYSE is known for large, established companies — think Berkshire Hathaway, JPMorgan, and Walmart.
The DMMs’ job is to maintain orderly markets. During extreme volatility, when algorithms might pull back and liquidity evaporates, these human market makers are obligated to step in and provide bids and offers. This is why the NYSE still maintains a physical trading floor — it provides a human backstop during market stress.
NASDAQ
Founded in 1971 as the world’s first electronic stock exchange, NASDAQ has no physical trading floor. Everything is done electronically through a network of dealers. NASDAQ is home to the biggest technology companies — Apple, Microsoft, Amazon, Google, Meta, Tesla, and NVIDIA are all NASDAQ-listed.
NASDAQ tends to attract growth-oriented and technology companies partly because of its historically lower listing requirements and its tech-forward identity. The NASDAQ Composite index is heavily weighted toward technology, which is why it is more volatile than the broader S&P 500.
Listing Requirements
To be listed on an exchange, a company must meet specific financial requirements:
NYSE: Minimum $4 share price, $40 million market cap, at least 400 shareholders, and 1.1 million publicly traded shares. Annual listing fees range from $50,000-$500,000.
NASDAQ Global Select: Minimum $4 share price, $45 million market cap, and various financial thresholds. Fees are generally lower than NYSE.
If a company falls below these requirements (for example, its stock drops below $1 for 30 consecutive days), it receives a delisting warning and must regain compliance or be moved to OTC markets — a significant blow to investor confidence and stock liquidity.
Beyond the US: Global Exchanges
Major exchanges worldwide include the London Stock Exchange (LSE), Tokyo Stock Exchange (TSE), Shanghai Stock Exchange (SSE), Hong Kong Exchange (HKEX), and Euronext (Amsterdam, Paris, Brussels, Lisbon). Each operates in its own time zone, creating a nearly 24-hour cycle of equity trading across the globe.
This matters because events overnight in Asia or Europe can set the tone for the US open. If Japanese stocks fall 3% overnight, US futures will typically be lower before the NYSE even opens. Global traders monitor all major exchanges — or at minimum, check overnight futures before the US market opens.
How a Trade Actually Executes
When you press “buy” on your phone, here is what happens in approximately 0.0003 seconds:
Step 1: Your order goes from your broker’s app to their order management system.
Step 2: Your broker routes the order to one of several possible execution venues — the NYSE, NASDAQ, an Electronic Communication Network (ECN), or in some cases, the broker’s own internal system (internalization).
Step 3: At the exchange, an order matching engine finds the best available counterparty. If someone is selling at or below your buy price, the trade executes. If no match exists at your price, your order sits in the order book until a match arrives.
Step 4: The trade is reported to the consolidated tape (the real-time record of all trades), and both parties receive confirmation.
Step 5: Settlement occurs T+1 (one business day later) — the actual transfer of shares and cash between accounts.
Order Routing: Where Your Trade Actually Goes
Most retail traders assume their order goes directly to the NYSE or NASDAQ. In reality, the majority of retail orders are routed to wholesale market makers like Citadel Securities or Virtu Financial. These firms pay your broker for the privilege of executing your order — a practice called “payment for order flow” (PFOF). The wholesale market maker then fills your order at the best available price (the National Best Bid and Offer, or NBBO) or better. This is not inherently bad — retail traders typically get the NBBO price or a slight improvement. But it is a system worth understanding because it explains why commission-free trading exists: your broker is paid by the market maker, not by you.
Stock Exchanges Knowledge Check
What happens to a stock that falls below $1 for 30 consecutive trading days?
“Payment for order flow” means:
Summary
Stock exchanges are organized marketplaces providing transparency, liquidity, and fairness. The NYSE (hybrid human/electronic) and NASDAQ (fully electronic) dominate US trading. Companies must meet listing requirements to remain on exchanges. When you trade, your order routes through your broker to an execution venue — often a wholesale market maker rather than the exchange directly. Understanding this infrastructure helps you understand liquidity, execution quality, and the real costs of trading.
In the next lesson, we will explore the entity that connects you to these exchanges: your broker — how to choose one, what to look for, and what hidden costs exist.
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