Stock exchanges are financial organizations that bring buyers and sellers together to trade in stocks from businesses that are registered with that particular exchange. Each stock exchange has its own regulations about which companies can list there, along with rules governing who can participate in transactions on the exchange. While anyone with enough money can buy a share of stock, an investor must usually do so indirectly through someone at the exchange.
Stock Exchange Seats
Stock exchanges restrict access to their selling floors, where transactions actually occur, to members who have trading licenses and hold seats on the exchange. A stock exchange's members pay for the privilege of trading stock there and hold equity in the exchange itself. In some exchanges, members can lease seats rather than buying them. When a business lists its stock with an exchange, it gives the exchange's members, as well as future members, the right to trade shares.
Stock brokers are different from stock exchange members. Brokers serve as intermediaries between clients, such as businesses or individual investors, and stock exchange members with physical presences on the trading floors. If you want to buy stock to give as a gift, save for retirement or diversity your portfolio, you will likely pay a commission to a broker to handle the transaction for you, through a member of the stock exchange where the business you want to buy into is listed. This is the same process that occurs with online brokers, which bring exchange members and investors together virtually.
Buying Stock Elsewhere
In some cases, you can buy stock from a company directly without the need to go through a stock exchange. This is only possible with companies that offer Direct Purchase Plans, or Direct Investment Plans. These plans allow individual investors to place orders directly with the company, saving on broker fees and bypassing the need for the services of a stock exchange member. Anyone with sufficient funds can buy stock through a Direct Purchase Plan, though some businesses that offer them do have minimum purchase amounts.
Other Ways to Invest
Investing in a business doesn't necessarily require you to buy stock at all. Anyone can invest in a business through an arrangement known as an equity agreement, or partner's equity agreement. This makes it possible to invest in small businesses and those that have not issued stock for sale on an exchange or directly to investors. An equity agreement specifies not only how much you have invested in a business, but also what role you will take, if any, in running the company. Combined with Direct Purchase Plans, equity agreements mean that investors have options even though they can't buy stock at a stock exchange directly.
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