Centralized and Decentralized Markets

What is a Centralized Market?

A centralized market is a financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.

Centralized markets are good for stockholders as the lack of a competing price model for an individual stock ensures that price movements become somewhat more predictable.

Example

The New York Stock Exchange is considered a centralized market because orders are routed to the exchange and are then matched with an offsetting order.

What is Decentralized Market

In a decentralized market, technology enables investors to deal directly with each other instead of operating from within a centralized exchange. A decentralized market uses various digital devices to communicate and display bid/ask prices in real-time. In this way, buyers, sellers, and dealers do not need to be located in the same place to transact securities.

A common example of a decentralized market is real estate, where buyers deal directly with sellers. A newer example is the virtual markets and blockchain system, which use cryptocurrency.