A stock exchange is a central marketplace where people trade the shares of listed companies in an organized, transparent way under a single set of rules. It is like a fresh market with stalls, except that the product being sold is "a piece of ownership in a company."
What Is a Share?
When a company needs money to expand its business, instead of relying only on bank loans, it can divide ownership into small units and sell them to investors. These small units are called "shares." People who hold shares are therefore part-owners of the company and have the right to:
- Receive dividends when the company makes a profit and announces a payout
- Earn profit from the price difference if they sell shares for more than they paid
- Vote at shareholder meetings in proportion to the shares they hold
Primary Market vs. Secondary Market
- The Primary Market is where a company sells shares to the public for the first time, known as an IPO. The money goes directly to the company.
- The Secondary Market is trading between investors after the IPO, which is what we see in trading apps every day. The money does not go to the company; it changes hands between buyers and sellers.
How Share Prices Are Formed
Share prices come from the matching of buy orders and sell orders. Buyers state the price they are willing to pay (Bid), and sellers state the price they are willing to sell at (Offer or Ask). When the prices match, the system pairs the orders automatically. The most recent traded price is the "market price."
If more people want to buy than sell, the price moves up. If more people want to sell, the price falls. Things that change demand include:
- Company earnings, such as profit growing more than expected, or losses
- Economic news, such as interest rates, inflation, and employment (read more: How interest rate changes affect the market)
- Future expectations: the market tends to reflect what people expect to happen more than what has already happened
- Market sentiment: fear and greed can push prices beyond fundamentals in the short term
Who Is Involved?
| Participant | Role |
|---|---|
| Stock exchange | Provides the trading system, sets the rules, and oversees information disclosure by listed companies |
| Securities company (broker) | Opens accounts for investors and sends buy and sell orders to the market |
| Regulator | In Thailand, the SEC (ก.ล.ต.); in the US, the SEC. Works to prevent fraud and price manipulation |
| Clearing house | Ensures shares and money change hands correctly after a trade |
Retail investors cannot trade shares directly with the exchange. They must always go through a licensed securities company. You can check the list of licensed firms on the SEC's website.
Market Capitalization (Market Cap)
Market cap = share price × total number of shares. It is used to measure the size of a company, and when all companies in the market are added together, it measures the size of that stock exchange. Read more: Which stock exchange is the largest in the world
For education only, not investment advice. Figures change over time, so check official sources before making decisions.