20/06/2024
The exchange serves as a structured marketplace for trading stocks, commodities, derivative financial instruments, and related services. Within this platform, participants engage in buying and selling contracts and services, either on their own behalf or representing the interests of their clients. The stock exchange operates as a wholesale entity, facilitating the exchange of goods, raw materials, and securities. These entities play a crucial role as economic instruments within a given economy, fostering the development of free market relationships 📈💰.
The exchange is an organization established on a voluntary basis by legal entities and individuals with interests. 🤝 Government agencies, banks, insurance and investment companies and foundations, religious and charitable organizations may not participate in the establishment of exchanges. 🚫 Exchanges are established on the basis of a decision made at a meeting of the founders. 📝 The founders contribute their shares in the amount determined at the meeting. 💰
The founders are liable for the results of economic activity in the amount of the contributed share. 💰 The exchange acquires the status of a legal entity from the moment of its state registration. 🏛️ After obtaining a license, it has the right to conduct exchange transactions. 📈 The first stock exchange was established in 1406 in Bruges, in front of the house of a wealthy man named Van der Bursa. 🏰
The person's surname means " purse"👛. The coat of arms depicted on his house consisted of three purses👛👛👛.The word "exchange" originated from the word Bursa and soon spread to Amsterdam,Lyon,London and other cities.
International commodity exchanges are a special type of constantly functioning market🛒.
Deals on the purchase and sale of raw materials and food products are held here.
Usually the commodity itself is not on the stock exchange.The goods are sold and purchased on the basis of established standards without presentation and inspection.
At the stock exchange, not a certain batch of goods, but exchange contracts for a certain variety, type, and brand in the amount determined by the exchange are bought and sold. 📈💰
The seller does not transfer the goods to the buyer at the exchange but issues a document confirming the right of ownership over the goods. 📝💼
This document is a warehouse certificate confirming that the seller has transferred the goods to the exchange warehouse. 📦
Based on this document, the buyer can take the goods from the exchange warehouse.
The annual turnover of international commodity exchanges for all types of transactions is $3.5–4.0 trillion. 💰 At present, approximately 70 commodities are the object of exchange trade. 📈 These goods account for about 30% of international trade. 🌐
In international trade, goods are usually divided into two groups: agricultural and forest products; and industrial raw materials and semi-finished products.
The farm and forest products group includes:
- Oil plants (oil seeds and products) - flax and cotton seeds, soybeans, soybean oil, celery;
- Cereal products - wheat, corn, oats, rye, barley, rice;
- Livestock products - live beef, meat, raw pork hips;
- Foodstuffs - sugar, coffee, cocoa beans, vegetable oil, eggs, peppers, potatoes, orange juice concentrate, peanuts;
- Textile products - cotton, jute, natural and artificial silk, washed wool, and yarn;
- Forest products - timber and plywood;
- Natural rubber. 🌳 🌾 🐄 🥚 🧶 🪵 🌳
The industrial raw materials and semi-finished products group includes:
- Fuels: crude oil, diesel oil, fuel oil, gasoline, propane gas ⛽️
- Industrial metals: copper, aluminum, zinc, tin, nickel, lead 🔩
All the goods listed above are in material form and are commodities (or physical commodities).
However, in modern stock trade, since the 1970s, a new "intangible goods" group or non-commodity group has emerged. It can be divided into two subgroups: 💡
1. Money, futures, and indices:
- Financial instruments: commodity futures, references to bank interest rates, stock indices, asset management tools, leases, and government securities contracts. 📈📊💰
Long-term treasury obligations and treasury trade in financial instruments futures, ticket futures, and municipal stocks and bonds. Subsequently, the stock exchange converts foreign currency into domestic currency to purchase futures. The rapid expansion of foreign exchange trade in financial instruments resulted in non-financial commodity contracts, including financial futures contracts, accounting for two-thirds of the highest-value commodity exchanges in global commodities. Consequently, the fundamental concept of "international commodity exchange" has undergone a transformation. According to an official 1993 report by UNCTAD experts, “a modern stock exchange is a financial market where different groups of participants (hedging specialists and traders) try to avoid price risk and transfer it to other participants. They contract with the price of raw materials or "non-commodity value" to carry the risk.
Accordingly, international commodity exchanges are traditionally defined as a type of global commodity market, where transactions involving commodities are conducted based on prevailing market prices. The classification of commodity exchanges within the financial sector underscores their significance in facilitating trade through commodity futures and other financial instruments. In the contemporary financial landscape, futures have transitioned to the domain of commodity exchange financial institutions, reflecting the evolving nature of capital markets. The global futures market constitutes an integral component of the global financial market and maintains close interconnections with the securities market and the interest rate market.
The traditional term “commodity” has been preserved in the names of modern international futures exchanges. 📈 Their functions have changed significantly, and for the first time, the world has led to the assessment of stock goods. 📊 The valuation risk among the participants of the exchange trade was served to distribute, to improve the organization, liquidity, and efficiency of commodities.
During the 1980s, the dominance of commodity futures in global commodity exchanges began to wane, giving way to the rise of money and financial instruments. This trend continued into the 1990s, resulting in a significant shift in the composition of the world's futures markets. In 1999, the total turnover of global futures contracts reached 2.4 billion, with the United States accounting for an impressive 47% of this volume through its futures and options markets. The remaining 53% was distributed among all other countries. Notably, indices serve as crucial indicators, providing valuable insights into the performance and value of stocks or companies.
They usually apply to this indicator to see which direction the economy is going, how the price of companies is changing. 📈💰
Key three indices in the US. Burges are carefully monitored: Dou Jones, S & P500 and NASDAQ. If Dou Jones covers the stocks of 30 largest companies, the second is 500 large, and the third is American and foreign companies located on the NASDAQ stock. While S & P500 is usually used as an index that best reflects the market, 📈 other indices are also very important.
The index is also utilized to gauge the efficacy of the investment portfolio. Customarily, the index serves as the benchmark for these comparisons. For instance, if a company's share price experiences substantial growth, the company may opt to split or denominate its shares. To illustrate, 1 existing share may be equivalent to 2 new shares. In such a scenario, the Dow Jones index necessitates adjustment to ensure that the share distribution does not impact the index. In the aforementioned example, if Company B undergoes a share split, the price of a single share would amount to 30 manats. Previously, prices were divided by 2 (2 is referred to as the divisor in this context).
The new divisor must be calculated without changing the index value. This can be calculated with the equation (20 + 30) / (divisor) = 40. The new divisor here should be 1.25. Therefore, if the prices change by the same amount the next day, the new index will be calculated as follows: (30 + 15) / 1.25 = 36. Thus, the new index decreased by only 4 points (10 percent) to 36. As can be seen, the price-weighted index does not fully reflect the situation. It takes into account only the prices of companies in the index, not their total value. In this regard, the weighted value index is more suitable. The S&P 500 index is one of these indices. Returning to the previous example, let's assume that Company A has 1,000 shares in the index, and Company B has 100 shares. Company A will have an initial index value of 20,000 AZN, and Company B 6,000 AZN. The index will be calculated as follows: (20,000 + 6,000) = 26,000. If the prices change in the same way, the new index will be: (30,000 + 3,000) = 33,000. Thus, the index increased by 7,000 points or 27 percent.
If we take the initial value as 100, the next index is 127. Starting in 1941, 10 households were selected as the base value for the S&P 500 index. 📈📊 Similarly, a divisor is calculated to reduce the impact of some company decisions on the index. In this case, the distribution of shares does not affect the index because the number of shares is taken into account when calculating the index. However, the divisor of the index changes when companies are split, merged, new shares are issued, or the company buys back its shares.
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