There might be confusion about the need for a variety of stock exchanges, especially among new investors. Understanding the basics can shed some insight into why certain shares are traded on one exchange and not another. There are plenty of books written on the history of the stock exchanges and you may have seen them featured in plenty of news stories and movies. The trading floors with the yelling brokers are probably what most people picture in their minds, but there are around 20 major exchanges in the world, with the NYSE or the Big Board, being the most popular.

The NYSE-Euronext is considered the largest of the stock exchanges, in the whole world because it is a combination of the NYSE and Euronext. Through this marketplace, you can trade cash equities, options, futures or ETFs, for example. Everybody has probably heard of the Tokyo Stock Exchange or the TSE, which is the second largest venue and The London Stock Exchange or the LSE trades 3000 companies from over 70 countries. The NASDAQ specializes in smaller companies that haven’t made it into the Big Board qualifications, while most penny stocks are traded on the OTCBB. or over-the-counter bulletin boards.

Essentially, stock exchanges are a venue for companies to raise capital for expansion, acquisitions and operations. but they open the doors for private companies to have its shares bought and sold by public investors. A private company can go public by taking in other people’s money, in exchange for shares or partial ownership of the company. Through the stock exchanges, stock equity is exchanged for capital, thus the name.

The companies listed in stock exchanges are better scrutinized, from a record-keeping and management stand-point, subject to SEC or the Securities and Exchange Commission regulations and oversight. Since this is a broad and overwhelming task, the SEC can overlook certain shysters that exist in the marketplace, so it is always important to do your own investigations, before investing.

Essentially, you are investing in shares of publicly-traded companies, when you are purchasing shares through the stock exchanges and the Big Board companies are regulated more closely than penny stocks on the OTCBB. While the penny stocks are the most affordable for beginning investors, it’s possible many are newer businesses, with a great idea or product, but they can also be companies that are nearing bankruptcy, trying to raise cash.

It might be easy to assume your investment is safe, but there is no guarantee on the market values of your shares. While it is true that audited financial statements are required, there are still some businesses that are able to skate under the radar, like the Enron scandal of a few years back. Knowing what a company does, the demand for its product and the competency of management are areas to consider before investing.

This isn’t meant to scare you because there are many investors that make a lot of money, trading shares through the stock exchanges. Keep in mind that there are just as many that lose money, too. Everything seems to be a matter of timing and knowledge, if you ask the seasoned investors that are most successful. For this reason, study investing diligently or find a comprehensive tutorial on trading shares, before you start investing .