The Stock Exchange: How Most Stocks Trade
Most stocks that you will find trade on what is known as a stock exchange, or also known as a stock market. This is where buyers and sellers of shares meet and perform transactions specifically by bargaining and deciding on prices for shares. All stocks here trade with a specific ticker, by which the company can be uniquely identified. For example, Google Inc. goes by the ticker name of GOOG by which it is easily identifiable. There are two types of exchanges: One with a busy trading floor like the image on the left, or the other system, where all trades are made electronically and through a network of computers.
The purpose of a stock market is to help facilitate trades of stock and to increase the security of trading equity. You can think of a stock exchange as kind of like a mall. Within this mall, you have individual stores, which in this analogy work out as stocks. The mall is nothing without the stores, and similarly, a stock exchange is nothing without its stocks.
What I must make clear before we move on, is the difference between a primary and a secondary market. A primary market is where securities (shares) are created through an Initial Public Offering (IPO). A secondary market is where investors trade previously issued shares without the involvement of the actual company that issued the shares. When most people talk about a stock exchange, they are referring to a secondary market.
The purpose of a stock market is to help facilitate trades of stock and to increase the security of trading equity. You can think of a stock exchange as kind of like a mall. Within this mall, you have individual stores, which in this analogy work out as stocks. The mall is nothing without the stores, and similarly, a stock exchange is nothing without its stocks.
What I must make clear before we move on, is the difference between a primary and a secondary market. A primary market is where securities (shares) are created through an Initial Public Offering (IPO). A secondary market is where investors trade previously issued shares without the involvement of the actual company that issued the shares. When most people talk about a stock exchange, they are referring to a secondary market.
The New york stock exchange
The world's most prestigious stock exchange has to be the renowned New York Stock Exchange (NYSE). This is a stock exchange where trades are made on a trading floor versus through a computer network, it is also known as a listed exchange. Also known as the "Big Board," the NYSE was founded over 200 years ago in 1792. At this moment, the NYSE bolsters stocks like Coca-Cola, McDonalds, GE, and Wal-Mart, making it the premier choice for the largest corporations in the United States.
Trading here is done through an auction method. At the trading floor, there will be a specialist, who does his best to try and find buyers and sellers of shares. Once they are matched, the price of the securities are determined through an auction.
Trading here is done through an auction method. At the trading floor, there will be a specialist, who does his best to try and find buyers and sellers of shares. Once they are matched, the price of the securities are determined through an auction.
nasdaq composite
The Nasdaq Composite is the most popular exchange that runs virtually, through what is called an over the counter market (OTC) market. This type of market, unlike the NYSE, runs with no central floor or location brokers. The trading is performed through a computer network like earlier mentioned. The earlier trend used to be that the premier corporations would trade on the NYSE, while the second tier stocks would trade on the Nasdaq. However, the 1990s technology boom completely altered all of this, as giant tech companies started to trade on the Nasdaq versus the NYSE. The Nasdaq Composite is currently home to big tech stocks like Oracle, Intel, and Microsoft.
In this lesson, you should have learned a bit about how stocks trade on stock exchanges, why they are important, and how a stock exchange functions. Click the button below to view the next lesson.