What are the Characteristics of Exchange?

Want to learn about the characteristics of exchange markets? In assets exchange, trade can be facilitated by many different types of markets. Each market follows a different trading mechanism and operates by the same, affecting both liquidity and control.

Markets are categorized into 3 types all having distinct characteristics of their own. Each type of market has its own features, so before investing in any stocks it’s best to know the characteristics of the Exchange.

As each exchange serves some purpose i.e., helps in facilitating exchange, storing value over time of non-monetary items like land, precious metals, etc whose value either appreciates or remains constant over time, translate worldwide exchange into common terms for smooth trading transactions, etc.

Characteristics of Exchange

These characteristics are varying according to market types. In general, it is characterized by the following:

➤ Contract or Lot Size

➤ Contract Period/Trading Execution

➤ Tick Size

➤ Delivery Terms

➤ Quality

Let’s see how all of these characteristics are linked and their connection with each type of market.

For instance, Quality and Delivery terms are not popular in bond or stock exchange but they are more commonly used in commodity exchanges. In the stock market, all which is stated there is based on contract and tick size and trading execution. Execution is generally done on an immediate basis. Contract size requires a minimum no. of shares which is basically lot size.

Let’s take an example over here – As stocks can only be purchased in lots of 100 in exchange. Tick size refers to the minimum value of the currency. For example, in the US stock market, the lowest tick price size is in cents. So contract size here would be $1 ($0.01X100). 100 denotes to no. of shares and $0.01 is the lowest denomination.

Delivery terms and quality is used in Commodity exchange because of derivating assets with some characteristics. The Exchange also specifies the characteristics of the assets. For example, Gold and diamonds have ratings and qualities. Moreover, these assets have to be in physical form which can be deliverable to buyers or contract holders.