Trading & Investment

Stock Market Participants and the way Exchanges Earn

Along with the long term investors and short term traders there are many Forex Broker List different types of participants associated with the stock market. Each has a unique role, but many of the roles are intertwined and depend on each other to make the market run effectively.

Stockbrokers

Stockbrokers are also known as registered representatives in the US. They are the licensed professionals who buy and sell securities on behalf of investors. These brokers serve as intermediaries between the Finance Brokerage Stocks exchanges and the investors by buying and selling stock investors’ behalf.

Portfolio Managers

Portfolio managers are professionals that invest in portfolios or collections of securities for clients. These managers get recommendations from analysts and make the buy or sell decisions for the portfolio. Mutual fund companies, hedge funds, and pension plans use portfolio managers to make decisions and set the investment strategies for the money they hold.

Investment Bankers

Investment bankers represent companies is various capacities, such as private companies that want to go public via an IPO or companies that are involved in pending mergers and acquisitions. They take care of the listing process in compliance with regulatory requirements of the stock market.

Custodian

Custodians and depot service providers, which are the institutions that hold customers’ securities for safekeeping so as to minimize the risk of their theft or loss, also operate in sync with the exchange to transfer shares to/from the respective accounts of transacting parties based on trading on the stock market.

Market Makers

Market makers are  broker-dealers who facilitate the trading of shares by posing bid and ask prices along with maintaining an inventory of shares. He ensures sufficient liquidity in the market for a particular set of shares. Market makers profit from the difference between the bid and ask price that he quotes.

How Stock Exchanges Make Money

Stock exchanges operate as for-profit institutions and charge a fee for their services. The primary source of income for a stock exchange is the revenue it gets from transaction fee that is charged for each trade carried out on its platform. In addition, exchanges earn from listing fee charged to companies during the IPO process and other follow-on offering.

Exchange also earns from selling market data generated on its platform, such as real-time data, historical data, summary data, and references data, which is vital for equity research and other uses. Many exchange also sell technology products, like a trading terminal and dedicated network connection to the exchange, to the interested parties for a suitable fee.

The exchange may also offer privileged services like high-frequency trading to larger clients like mutual funds and asset management companies (AMC), and earn money accordingly. There are provisions for some regulatory fee and registration fee for different profiles of market participants, like market maker and broker, which form other sources of income for the stock exchange.

The exchange can also make profits by licensing their indexes (and their methodology) which are commonly used as benchmark for launching various products like mutual funds and ETFs by AMCs.