Why stock exchanges matter

Many investors participate in the world’s stock markets, regularly buying or selling shares. They understand that stock market investment can be a means to potentially achieve higher returns than cash, although it comes with certain risks. However, they may be less familiar with the mechanics of how a stock market actually works.

Stock markets have been a means for the exchange of capital since the 13th century. In medieval Venice, merchants and moneylenders would meet informally to do business in the town square. In general, they were trading loans rather than shares in a company, but they created the foundations for modern-day stock exchanges. The first official stock market was in Antwerp in the 1500s, when companies began to issue shares to fund exploration and trade across the world.

The concept became widespread. The London Stock Exchange can trace its roots back to 1698, while the New York Stock Exchange was established in 1792. Today, there are more than 60 major exchanges across the world, at which almost 60,000 companies are listed. They have developed significantly over the years, with so-called open outcry trading – where traders stood in a pit and traded by shouting or using hand signals – replaced by electronic trading. Regulation has also changed significantly with the aim of levelling the playing field for investors.

A stock market’s primary purpose is to allow companies to raise capital to expand. This makes them a vital tool of the capitalist system. Companies have other options – such as borrowing, or raising funds from venture capital and private equity firms – but eventually most companies will seek a public listing when they are large enough.

A stock market’s primary purpose is to allow companies to raise capital to expand, making them a vital tool of the capitalist system.

What are companies’ shares worth?

Companies will become listed, also known as going public, through an initial public offering on a stock exchange in which they sell shares to investors. This is what is known as the primary market. The sale will usually be managed by investment banks, which will seek buyers for the shares, including institutions such as pension funds and insurers, as well as retail investment fund managers and wealth managers. This process leaves the investors with a proportion – usually small – of that company.

If investors decide they want to sell all or part of their shareholding, they can do this on what is called the secondary market, where people and businesses buy and sell shares from each other. The price is established by transactions in the market, based on investors’ best calculations of what the company is worth. To judge this, they will look at a company’s revenues and profitability, its current share price, and how these can be expected to change in the future.

Stock exchanges are important because they offer a channel for capital to reach businesses that need it to develop and grow. Companies can raise capital to build their business, while investors can hope to generate higher returns than they might do in a savings account, while sharing in a company’s profitability through dividend payments. If a company is successful, they may be able to sell the shares at a higher price in the future. Stock markets help support economic growth by allowing companies to invest and expand.

National authorities have stepped up regulatory requirements governing trading on stock exchanges. Their aim is to ensure that trading is fair and transparent.

Recently, national authorities have stepped up regulatory requirements governing trading on stock exchanges. Regulators such as the Securities and Exchange Commission in the US, the Financial Conduct Authority in the UK, France’s Autorité des Marchés Financiers and Germany’s BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) aim to ensure that trading is fair and transparent. This includes, in particular, ensuring that all market participants have access to the same information and that individuals are not gaining an advantage by trading with insider information.

Domestic and foreign companies

Each stock exchange has its own specific characteristics. They may not necessarily represent the domestic economy – a company might be listed in New York or London, but could obtain its revenue from around the world. Nevertheless, there tend to be patterns to where companies choose to be listed. The US Nasdaq exchange, for example, has become the natural home for up-and-coming technology companies, while the London Stock Exchange hosts trading in the shares of many of the world’s largest financial institutions, such as HSBC. The Euronext Paris market has become a hotspot for France’s globally dominant luxury goods companies. Stock markets in developing countries are commonly used by what some call ‘BBC’ companies – banking, brewing and cement.

The New York Stock Exchange is the world’s largest by market capitalisation with more than 2,400 companies worth in aggregate, according to the latest sources, some $38.7 trillion as of November 2025, 20% of the value of the world’s listed companies. The Nasdaq is the second largest exchange, with a market capitalisation of $35.3 trillion in September 2025, thanks to its value having tracked the astonishing growth of the US technology sector.

Outside the US, the Euronext group, founded in 2000 and headquartered in Amsterdam but with operational headquarters in Paris, is the largest European exchange operator, spanning the Netherlands, Portugal, Belgium, France, Ireland and the UK, although the Bourse de Paris accounts for more than 80% of its $7.2 trillion in aggregate market capitalisation.

Rise of Asia’s equity markets

Asian markets have also grown rapidly in recent decades. The Shanghai Stock Exchange was only established in 1990, but has benefited from the growth in Chinese market activity since the country joined the World Trade Organisation in 2001 and its listed companies had a market capitalisation calculated at around CNY52.4 trillion ($7.3trn) at the end of 2024; also in China, the Shenzhen Stock Exchange had a capitalisation of CNY33.0 trillion ($4.5trn), and the Hong Kong Stock Exchange HK$35.32 trillion (US$4.55trn). Other emerging stock markets that are becoming more important include the National Stock Exchange of India ($3.5trn), the world’s ninth largest, and the Saudi Exchange ($3.1trn, 1oth).

Within the major stock exchanges, there may be various market segments for different types of company. Smaller businesses, for example, may not want the complexity and administrative burden that a full listing entails. In the UK, along the main market, the Alternative Investment Market (AIM) enables smaller companies to raise capital more easily.

The Luxembourg Stock Exchange comprises a range of different markets and platforms – the Bourse de Luxembourg, the Euro MTF multilateral trading facility, and the Securities Official List, for listing without admission to trading – to enable companies to raise finance on the main market or an alternative platform that suits their financing needs. The exchange has also operated the Luxembourg Green Exchange sustainable finance platform since 2016.

Growth of private companies

However, in recent years there has been a trend among companies, especially in the US and the UK, to move away from stock market listings and raise resources for growth through borrowing or private fundraising from venture capital or private equity firms. This reflects an increase in private market capital as well as a pronounced slowdown of initial public offerings.

For individual investors private equity cannot provide the same liquidity and ease of access as investment through a recognised exchange.

Company management teams – and especially founders – may prefer the freedom and flexibility of private capital over a stock market listing, which may also dilute their ownership to a greater extent. However, for individual investors private equity cannot provide the same liquidity and ease of access as investment through a recognised exchange.

For most companies, a stock market listing remains the most effective way to raise large amounts of capital. The transparency and accountability of a stock market listing can keep management teams alert and help to protect the interests of shareholders, especially those with small stakes. Stock exchanges have been a vital tool in driving capitalism for hundreds of years, and seem to be set to remain so in the future.