Introduction to Stock Markets in the United States

There are several venues where stock trading takes place in the United States. There are prestigious exchanges, minor ones, and those serving fallen angels or listed companies that never made it big. There are also venues for institutional and retail investors to trade after hours, and systems where shares can be exchanged without having to go through an official exchange.


The New York Stock Exchange

The NYSE, located at the corner of Wall and Broad Streets in New York, is one of the largest and most prestigious stock exchanges in the world. The companies traded there are large and in business for long time as listing requirements for this exchange are strict. NYSE is part of Intercontinental Exchange of which Euronext is a member. (Euronext is a pan-European exchange.) 

As for exchange-traded securities, the symbols of NYSE-traded stocks have range from one to three letters (i.e, A for Agilent Technologies, GM for General Motors, and IBM for International Business Machines). Occasionally, a stock will have a fourth letter but this typically indicates a type of a stock (class A or class B, with the latter having limited or no voting rights). Thus, there is BRK-A and BRK-B, two classes of Berkshire Hathaway stock.

NYSE also provides ARCA platform for trading ETFs.

The American Stock Exchange and other minor exchanges

The American Stock Exchange (AMEX) is also located in New York. AMEX is small in comparison to NYSE and now it is part of NYSE-EURONEXT as it was acquired by the same organization. The American Stock Exchange is the third biggest stock exchange in the United States after NASDAQ and NYSE.

There are also regional stock exchanges in the U.S. and these located at such places as Boston, Philadelphia, and Chicago. They get minor share of business.

The floor of the New York Stock Exchange


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The NASDAQ Market

NASDAQ is a stock exchange but it differs from the exchanges above as it is not centrally located. Moreover, NASDAQ is a quote, not order-driven market. Typical stock traded on NASDAQ has three or four letter symbol, occasionally a fifth letter to tell more about the company. For example, F stands for foreign issue, Q for bankruptcy, Y for American Depository Receipt.

NASDAQ National Market System (NMS) covers OTC trading of relatively large companies that meet criteria related to size, liquidity, and financial standing. On the other hand, NASDAQ Small Cap is for smaller companies. So, at times by knowing which exchange the stock trades on, a lot can be known about a company.

OTC Bulletin Board

There is also  Over-the-counter Bulletin Board (OTC BB). This is where you can find many microcap companies, often penny stocks. Some of these were listed on the exchange at one time but got de-listed for failing to meet exchange criteria as to the stock price, capitalization, and/or reporting requirements. Since listing requirements aren’t as tough as for NYSE, AMEX or NASDAQ, many very small and new firms decide to list there.

Most of the companies traded on OTC BB are not stable companies and aren’t very liquid- not much trading takes place for many- thus spreads (differences between bid and ask prices) are larger. Effectively, this is a risky market to trade and is often overlooked by institutions and Wall Street professionals, which at the same time presents many opportunities for an astute investor / trader willing to take larger risks.

Pink Sheets

Pink Sheets are the lowliest form of a stock exchange. Companies traded on Pink Sheets don’t need to meet minimum requirements, including filing reports with Securities and Exchange Commission (SEC). These stocks are thinly traded, and bid and ask prices may not be available for some of them. Instead the price of the last trade will be posted.

Pre-market/After-hours, and Institutional trading

Trading of securities takes place after the exchanges close for the day. Usually, these are institutions exchanging shares though a variety of systems, often referred to as ECNs (Electronic Communication Networks) of which the Instinet is an example.

Institutions can also contact each other to exchange shares. After-hours trading can be volatile due to smaller liquidity as few participate in it. In recent years, however, more and more retail investors got access to pre-market and after-hours trading.

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