A centralized market structure is one that has all orders routed to a single central exchange without any other market. Investors looking to purchase or sell a specific asset can only access the quoted prices on the exchange.

Summary

  • A centralized market refers to a financial market structure where all orders are routed to a single central exchange and there is no competition.
  • A central market is used to ensure fair trades, increase business and speed up the selling/buying process.
  • Stockholders love centralized markets because they are less likely to be affected by price fluctuations.
  • Although decentralized markets are more popular than ever since the introduction of blockchain technology, there is no regulation or oversight from the government.

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Understanding Centralized Market

Because orders are routed to New York Stock Exchange, they are then matched with an offsetting order. The foreign currency market on the other hand is not considered a centralized market because orders are routed to the exchange and then matched with an offsetting order.

A centralized market is a specialized financial market that is organized in such a manner that all orders, buy or sell, are routed through one central exchange that has no competing market for the particular financial instruments. Investors who wish to purchase or sell specific assets through the exchange market (or exchange) will only be able to access the security prices.

Centralized markets have one key advantage: pricing is transparent and easily accessible to all. Potential investors can view all trades and quotes, and see how they move when formulating strategies. A clearinghouse is another key component of central markets. It acts as a middleman between buyers and vendors and ensures the integrity of transactions. In effect, buyers and sellers transact with each other and not the exchange. A centralized market also has the advantage of not having to deal with multiple counterparties. Stock markets like the TSE, as well as commodity and security markets such as the CME or the AS, are all major centralized markets.

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The Emergence Of Decentralized Markets

Decentralized markets, which are in direct opposition to the traditional centralized market model of online commerce, are growing along with the advancement of computer technology. 

Decentralized markets are a new way to connect buyers and sellers.

The decentralized market model can be achieved using a peer-to-peer trading program running on a computer. The integration of virtual currency is an important aspect to emerging decentralized markets.