Most of the stock securities are traded on what are called stock exchanges. Stock exchanges are where stock traders come together to decide on the price of a stock security. If you have ever watched the opening bell being rung at the NYSE you have witnessed the opening of the day’s trading on an exchange and on a trading floor. This is an example of a exchange with a real location, with real stock traders yelling and screaming on the trading floor to make their trades. There are also other types of exchanges which are virtual and therefore lacking an actual trading floor. These virtual stock exchanges are made up of a network of computers where the stock trades are executed electronically.
You could look at the stock market as the Ebay of buying and selling company ownership. That is, instead of having to travel around store to store, garage sale to garage sale to find the best price to own something or to find a buyer for what you are trying to sell, you instead log into the stock market and you are all set. Buyers can find sellers, and sellers can find buyers and trade their shares back and forth.
The New York Stock Exchange
One of the most famous stock exchanges is the New York Stock Exchange or the NYSE. Also referred to as the “Big Board” the NYSE was first founded over two centuries ago, in 1792. The largest companies is America such as Coca-Cola, McDonalds and Wal-mart call the NYSE their home.
The NYSE is a listed exchange where a lot of trading is done face-to-face on the trading floor. The flow of an order starts first at the brokerage firm, then down to the broker on the floor (at their trading post). This person is also known as the specialist, and they match the buyers and sellers of a given stock. At the time of the actual sale the price is determined via auction where the current price is the greatest amount a buyer is willing to pay and the lowest price at which one is willing to sell.
The NASDAQ is a virtual stock exchange, refereed to as an over-the-counter or OTC market. There is no physical location for the NASDAQ, nor are there floor brokers on the NASDAQ. All stock trades are done electronically through a network of dealers. While the NYSE used to be the only place to go if you where a big company, the tech boom of the 1990′s changed that though. The NASDAQ is now the home of tech giants like Cisco, Dell, Intel, Microsoft and Oracle.
With the NASDAQ brokerages act as market makers for the stocks being traded. It is the task of the market maker to provide a streaming bid and ask price within a certain percentage spread for shares being traded on the NASDAQ. They have the option to match buyers and sellers directly. However, most often they will maintain an inventory of shares to sell to investors.
American Stock Exchange
The American Stock Exchange or the AMEX, is the third largest on the major US stock exchanges. When the AMEX was first created it acted as an alternative to the NYSE. However, now that is the role of the NASDAQ. The National Association of Securities Dealers or the NASD (the parent company of the NASDAQ) bought the AMEX in 1998. Mostly all remaining trading that occurs on the AMEX is with small-cap stocks and their derivatives.
Over The Counter Bulletin Board
This is the home to the renown penny stocks. Not really an exchange by itself, but really a sub-section of the other exchanges. For example, any small public company of the NASDAQ that do not meet listing requirements are consider OTC stocks or penny stocks. Due to the lack of regulation that exists in this market sector risk can be very high.