Understanding the New York Stock Exchange
NYSE (New York Stock Exchange) Euronext is a holding company created by the merger of the NYSE Group Inc. and Euronext N.V. This merger created, according to NYSE Euronext's website, "the world's leading and most liquid equities exchange group". NYSE Euronext consists of stock and derivatives exchanges in the U.S. and Europe. NYSE Euronext trades stocks, futures, options, and fixed income products (bonds).
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History
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The New York Stock Exchange traces its history to the Buttonwood Agreement in 1792, where 24 brokers and merchants agreed that they would trade securities in New York City on a commission basis. When the telegraph was invented in 1844, the New York Stock Exchange was able to communicate with brokers and investors outside New York City. The New York Stock Exchange became the world's investment capital after World War I, replacing London, England, as the world's investment capital.
The NYSE
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The New York Stock Exchange consists of members who buy and sell shares of stock on the exchange for their clients. One benefit of exchange membership is that companies can trade stocks on the exchange and charge commissions when they trade stocks for customers, which can be companies or individual investors.
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Stock Exchange Specialists
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Every company who is listed on the New York Stock Exchange is assigned a post on the stock exchange's trading floor where a person called a specialist will buy and sell securities of the company they are a specialist for. Members of the exchange transmit their buy and sell orders to the specialists either through electronic means or by a broker on the exchange floor.
Stock Prices
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If a specialist's post has more brokers looking to buy the stock than those wanting to sell the stock at the current price, the stock price will rise. If the specialist's post is surrounded by more brokers looking to sell the stock than those wanting to buy the stock, the stock price falls. When a new price is reached between the brokers who want to sell the stock and the brokers who want to buy the stock, the specialist records the information on the stock ticker. The stock ticker runs continuously in brokerage houses worldwide, and it displays current stock prices.
Circuit Breakers
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In the past, there have been large fluctuations in stock prices on the stock exchange during the day. To allow brokers to evaluate new information, circuit breakers were created to halt trading at specific times. The circuit breakers are based on the Dow Jones Industrial Average (The Dow), which measures the price movements of stocks of 30 large U.S. companies. If The Dow declines by 10 percent before 2 p.m., the stock exchange closes for an hour. If The Dow declines by 20 percent before 1 p.m., the stock exchange closes for two hours. If The Dow declines by 30 percent, the stock exchange closes for the day.
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References
- Photo Credit new york stock exchange image by Gary from Fotolia.com
