A wide variety of products are traded on a stock exchange. There are three key distinctions:
- Cash market or futures market
- Commodity exchange or securities exchange
- Equity securities or debt securities
Many stock exchanges are exclusively securities exchanges, while others are exclusively commodity exchanges. In Vienna, all these areas are combined within a single stock exchange: The Vienna Stock Exchange was merged with the General Commodities Exchange in 1876. In 1997, the cash market and the futures market were merged into a single company, now known as Wiener Börse AG. Since April 2014, selected futures market products have no longer been traded on the Vienna Stock Exchange, but on the Eurex® Exchange Frankfurt, one of the world’s largest trading venues for derivatives.
Cash market and futures market
- On the cash market, transactions are concluded and settled within a short period of time: you buy a share and become a co-owner of the total assets of a public limited company.
- On the futures market, a transaction is not settled until a later date. With a futures contract, both contracting parties know their respective buying and selling prices in advance and can plan their transactions more effectively. The subject of such futures contracts can be commodities (mostly raw materials), but also securities.
Commodity exchange and stock exchange
- Commodity exchanges are much older than stock exchanges. Their importance in determining the prices of numerous commodities remains undiminished. Traditionally, commodity exchange has played a minor role at the Vienna Stock Exchange.
- Through the Vienna Stock Exchange, investors have access to Austrian shares, bonds and so-called “structured products” (certificates, Exchange Traded Funds, investment funds and warrants). Structured products are developed (“structured”) by banks and track the performance of the underlying investments – such as shares, indices, bonds, currencies, commodities, futures, options or other financial instruments.
Equity securities and debt securities
Traded securities can be broadly divided into two groups:
- The holder of an equity security is granted a right of ownership. This means the holder has a stake in the company – in good times as well as in bad times. The potential for capital appreciation and dividend payments is offset by the risk of loss. The classic equity security is the share.
- A debt security represents the right to repayment of principal and interest. The purchaser of the security lends a specific sum of money to the debtor for a specified period. The return is limited, and the risk depends on the debtor’s creditworthiness. A typical debt security is a bond. Bonds are issued by both public and private debtors.
