What type of market are exchange markets classified as?

Exchange markets are classified as auction markets due to the structure and functioning of these markets. In an auction market, buyers and sellers come together to trade securities at prices determined through a bidding process. When individuals want to purchase a security, they submit bids indicating the maximum price they are willing to pay. Conversely, sellers submit offers or asks, which reflect the minimum price they are willing to accept for their securities. This dynamic of matching bids and asks leads to the establishment of a market price at which trading occurs.

Moreover, auction markets create a transparent environment where the price discovery process is active, driven by supply and demand conditions in real-time. Participants can see the buy and sell orders, which enhances the market's efficiency. The New York Stock Exchange (NYSE) is a prime example of an auction market, where trades are executed on the trading floor through an open outcry system or electronically, yet the core principle remains that of an auction process.

In contrast, other types of markets, such as negotiated or hybrid markets, do not primarily rely on this competitive bidding process to determine prices. Negotiated markets involve direct discussions between buyers and sellers to reach an agreement, while hybrid markets may combine elements of both auction and negotiated systems but do not distinctly reflect the characteristics