How Many Types of Exchange Markets?

Searching for the types of Exchange Market? There are various types of different markets facilitating trade in assets exchange. Each market follows a different trading mechanism affecting control and liquidity.

Just like different exchange market types, the rating system of exchange also varies. The Float, the fixed-rate, and the pegged float are three major types of exchange rates.


Under different exchange,there comes several trading markets. Stock market (Equities), forex (currency), bonds, options and commodies are few popular markets. There can more types of markets within each market.

Different Types of Exchange Markets

There are three main types of exchange markets.

  1. Dealers Market(Over the counter)
  2. Exchange Market
  3. Brokers Market

Let’s understand more about each type of exchange market in detail. 

  • Dealer Market

This market operates with a dealer who acts as a counter-party for both sellers and buyers. The Dealer then set bids for shares and ask prices for the security in question for trading with those investors who accept dealer terms. These securities when traded by dealers are occasionally known as Over the counter (OTC) trade.

Liquidity is maintained in the markets by the dealer at the only cost of a small premium. In other words, dealers set bids lower than the actual market price and ask for higher prices. The difference between these prices is the profit makes by the dealer.

Dealer markets are popular in currency and bonds rather than in stocks. The Dealer market can also be considered for future options. The Foreign Exchange market is generally operated through dealers with currency exchanges and banks acting as dealers mediators.

Of all of the above-mentioned markets, dealer markets are the most liquid market.

  • Broker Markets

This market operates by finding a counterparty to both sellers and buyers. In this market because of the dealer acting as a counterparty and the delay with brokers in finding appropriate counterparty results in less liquidity as compared to Dealers Market.

Stock markets were an example of brokerage markets conventionally. Stockbrokers used to try searching on the trading floor for a suitable counterparty for their clients. This is the expected image of Wall Street where men and women yelling at each other and noting down their clients’ orders.

The broker market can be used for dealing in all types of securities, mainly for initial issues. An IPO, for instance, is an example of initial issues. When IPO’s are issued, Investment banks works as a broker by brokering of share and finding an appropriate counterparty (Subscribers). This also is the same with issues of new bonds. This market is also appropriate for tailored or custom products.

  • Exchanges

In comparison between in all of these three types of markets, Exchange is the most automated, yet if there’s no buyer or seller able to meet in monetary terms, then no trade can be executed.

Now the stock market is not confined to a brokerage market because of the switch to an automated exchange. Trades happen based on order books that match buyers and sellers.

The merits of the exchange are buyers and sellers are able to find their own counterparties. As exchanges are automatic, there’s no need for a dealer or broker.

They are best for standardized securities (Stocks, bonds, contracts, futures, and options). Exchanges also specify characteristics for the securities traded on the exchange.

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