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What is an exchange

Exchange organizes trading of valuable goods and other resources. You can buy and sell both online and offline. The main task of the exchange is to connect sellers and buyers in one place, to offer them effective tools for making contracts.

You could compare the stock exchange with a traditional indoor market, where buyers and sellers gather together. Everything is sold on such markets: food, clothing, manufactured goods, old things. Even though the seller sets their own price for their goods, the buyer may bargain with them. As a result, the jacket price can sometimes be reduced by half, or you can get a 20% discount on food.

The difference between an exchange and a market is that such bargains do not stop for a single moment. More than that, if buyers start to win, the price is automatically reduced for everyone.
Let’s say we talk about a cryptocurrency exchange where Bitcoin is traded. The initial currency price can reach $ 60.000, but there isn’t anybody willing to buy a coin at this price. So, sellers start reducing the price and continue to do so until there is someone willing to buy an asset. The following buyers initially have better terms for purchasing the coin.

If buyers win on the stock exchange, there is a shortage of supply. Let’s imagine once again a regular indoor market, where the same jacket is being claimed by two people at the same time. If both are willing to bargain, the price of the product increases until one of them refuses to buy. It’s pretty much what happens on a buyer dominated stock exchange.

If sellers win on the stock exchange, there is a shortage of demand. In the case of the indoor market, this would be the situation when two sellers are offering the same jacket to just one potential buyer. So, the price will be reduced until the customer agrees to the proposed terms.