Centralized Market - Explained
What is a Centralized Market?
Written by Jason Gordon
Updated at April 17th, 2022
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Table of Contents
What is a Centralized Market?How Does the Centralized Market Work?The Emergence of Decentralized MarketsWhat is a Centralized Market?
A centralized market is a financial market free of competing parties (markets). A centralized market is structured in a way that allows all orders (purchase and sale) to be transferred to a central exchange. There is an absence of competing markets in a centralized market, this is why all orders are made through one exchange. Investors who are to trade in this type of financial market, rely only on the prices of securities quoted by the market or exchange.
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How Does the Centralized Market Work?
There are many Centralized markets around the globe and there are common features of Centralized markets. There is transparency in the prices quoted in a centralized market, both the seller and buyer have access to the price. Investors who are willing to participate in the market can also see the quotes and trades available in the market before making their decisions. The New York Stock Exchange (NYSE) is a popular example of a centralized market. NYSE has only one central exchange where all buying and selling orders are routed and matched. Centralized markets are special types of the financial markets in the sense that they have no competing markets as transactions done or securities purchased in the market are not readily found in order markets.
The Emergence of Decentralized Markets
The opposite of a centralized market is a decentralized market. This type of market has multiple exchanges or locations where buying and selling orders are routed, there is competition in the market which allows investors and traders to opt for the best deals. Decentralized markets give traders the opportunity to execute their trade without any physical presence, this means selling and buying orders can be made online where there is a myriad of markets, locations, and exchanges that they can place their orders. The advancement in technology is helping decentralized markets gain more recognition as the days go by. This type of market connects buyers directly to sellers without any intermediary.
