Who Participates In The Stock Market? [Explained]

It is safe to say that the stock market attracts a wide variety of people and corporations from diverse backgrounds.

How many people do you know that trade stocks? Do they all fit the same theme?

I bet no! And that’s the beauty of it. You never know who you’re gonna come across next and their reasons behind getting into stocks.

I love hearing the traders’ stories inside our Trading Room.

But the stock market is more than just traders and investors. There are also brokers, stock exchanges, regulators, financial intermediaries, and more.

And everyone who transacts in the stock market is called a market participant.

Below, we will take a closer look at four main players and how each of them participates in the stock market.

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Who Are Investors?

Investors are individuals who own, buy and sell stocks in publicly listed companies and provide businesses with capital. Investors who own stocks are also called stockholders or shareholders.

Now, you may be thinking about whether there is a difference between being a trader and being an investor.

The answer is YES.

Technically, in the stock world, you are an investor if you keep your shares long-term (for example, a period over 1 year).

You are a trader if you keep your shares for the short term only (for example, a period of 1 month).

There are also different types of Investors, Retail and Institutional.

Retail investors are normal people like you and me whereas Institutional investors are banks and big fund companies.

What Are Stock Exchanges?

A stock exchange can be defined as a centralized location or a marketplace that brings buyers and sellers together and provides them with a platform to buy and sell securities. It ensures that transactions are done in an efficient, fair and transparent manner.

It enforces rules and regulations that its publicly listed companies and trading participants must strictly abide by.

Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds.

There are numerous stock exchanges located worldwide. Some of the largest exchanges are the New York Stock Exchange (NYSE), the NASDAQ, the Japan Exchange Group, the London Stock Exchange, the Hong Kong Exchange, Euronext, the Shanghai Stock Exchange, the Bombay Stock Exchange and much more.

Now, we know it may be difficult to picture what it looks like in real life so here’s how ten major stock exchanges around the world compare.

By the way, each square is worth $100 billion.

stock exchanges worldwide

What Are Stock Brokers?

Stock Brokers or Share Brokers are probably one of the most important financial intermediaries as they act as the middlemen or agents between the sellers and the buyers in the market.

They buy and sell stocks and other securities for retail and institutional clients through a stock exchange or over the counter in return for a fee or commission.

Stock Brokers are usually associated with a brokerage firm or broker-dealer and operate under the guidelines.

There are different types of brokers, full-service, discount and direct access. The main difference is in how the commissions are structured.

But more on that later. For now, all you need to know is that stockbrokers are your gateway to stock exchanges.

Who Are Regulators?

Your protection is a priority, even when it comes to stocks.

There are a number of organizations out there whose main job is to protect investors from fraud and other illegal activities.

You may have heard of a few of them.

The SEC or FINRA? Do any of them ring a bell?

All of these Regulators oversee the stock exchanges around the world and each and every company connected with the selling of securities. These regulators ensure that the stock exchanges conduct their business fairly, participants don’t get involved in any fraudulent activities and that small retail investors’ interests are protected.

On top of that, these organizations have a robust anti-fraud branch that ensures that the corporations comply with strict security rules.

Now, there are obviously more participants than these four, but to keep things simple (ish) [for now], we won’t go into any more detail about the remaining ones.

And for the curious ones out there, we will leave you with this graphic.

stock participants

A picture speaks a thousand words, right? 😉

See you in the next lesson.