How do the Financial Markets function?

The stock market combines the demand for and supply of capital around the globe and money suppliers are always looking for a profitable use for their savings. Financial intermediaries, such as banks or funds, are suppliers of capital which are pooled financial resources available to the capital market. Companies or other institutions usually demand money and need funds to finance investment projects.

The stock market is a state-regulated marketplace governed differently by each sovereign-regulated framework. For example the JSE acts as frontline regulator, while the financial sector conduct authority (FSCA), supervises the JSE in the commission of its regulatory duties and in America, the U.S. Securities and Exchange Commission (SEC ).The SEC's tasks include the control of trading and compliance within the legal framework to protect shareholders and prevent illegal practices.

Companies wishing to list on the JSE, must abide by the listing requirements and in the U.S. must register with the SEC. Raising funds on the capital markets through a share issue and the associated listing on a U.S. stock exchange and even the JSE is only possible if the company is registered and licensed with and approved by the different regulators.

With a few exceptions, shares are generally not traded physically but deposited electronically with so-called share custodians or depositories. Company shares are acquired via institutions or brokers with which investors have their share accounts with. Their trading systems and platforms are linked to the stock exchanges via electronic data processing systems, which are then used to process buy and sell orders (securities orders) from market participants.

There are various stock exchanges and brokers worldwide, but where shares can be traded is determined by when the shares are issued. The stock market is, therefore, not a centrally organised institution but consists of many trading houses and institutions located in very different places and interconnected via electronic systems.

Together with the market participants, they constitute what is commonly understood as the stock market.

Types of Stock Market Orders

• A market order is an unlimited buy or sell order to be executed at the following price determination.
• A Limit Order is a limited buy or sell order to be executed at a specified limit or better.
• Iceberg Orders are orders that allow the placing of large volumes in the order book during continuous trading. Iceberg orders do not disclose the total order volume to the rest of the market.
• Stop Market Orders are placed in the order book as a market order when the stop limit price is reached.
• Stop Limit Order is when the stop limit is reached, this order is automatically entered in the order book as a limit order.
• Trailing Stop Order is a trailing stop order with a variable stop limit.

The Exchange performs the following tasks additionally:

• Providing a trading platform
• Ensuring transparency of prices and turnover
• Admission of new issues to exchange trading