Financial bourses play a crucial role in the economy. They assist companies in raising capital and enable investors to generate profits.
Financial bourses operate on the principle of supply and demand. When there is high demand for an asset, its price increases. Conversely, when the supply of an asset is abundant, its price decreases. Bourses help establish the fair price of assets, allowing buyers and sellers to find each other and make trades.
Types of bourses based on the instruments traded there:
- Stock Exchange is a place where securities like stocks, bonds, and shares of investment funds are traded.
Example: New York Stock Exchange (NYSE)
- Currency Exchange is a place where currencies are traded. In most cases, the term “currency exchange” implies the interbank forex market, known as FOREX.
- Commodity Exchange is a place where commodities such as grains, metals, and energy sources are traded.
Example: New York Mercantile Exchange (NYMEX)
- Cryptocurrency Exchange is a place where financial instruments from the world of cryptocurrencies are traded.
Financial bourses can also be used to trade derivatives (financial instruments derived from underlying assets), including futures, options, and others. For instance, on the Binance exchange, you can buy actual Bitcoin on the spot market or trade Bitcoin futures without physically owning the cryptocurrency.
As time goes on, bourses are becoming more versatile, offering clients a broader range of opportunities. You can trade various types of assets within a single bourse and brokerage account.