Types of Stock Markets

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Stock markets are where traders gather to buy and sell ownership shares in companies, better known as stocks. Stock markets are around the world, although the United States traditionally has had three different types since the 1970's, exemplified by three separate exchanges. Each of these exchanges serves a different need within the securities market.

Function

  • Companies sell shares of stock to raise capital. When a person buys a share of stock, he becomes part owner of a company, and shares in the profits and losses generated by that company. Companies that are making a profit can command higher prices for their shares, while those that are not have shares that are worth less. Traders attempt to buy shares at a lower value and sell them when they reach a higher value, making a profit off the difference. Since the fate of a company can change from moment to moment and rumor can affect the value of a stock, shares may change hands several times during the course of a day.

New York Stock Exchange

  • The largest exchange in the world is the New York Stock Exchange, or NYSE. It was established in 1792 and grew to international prominence in the aftermath of World War I. The NYSE is the home of primarily large corporations. The NYSE has strict limits for the companies it will allow to register and stocks issued by registered companies cannot be sold outside the exchange. In 2007, the NYSE merged with Euronext, the leading market in Europe, which solidified the NYSE's place as the world's premiere exchange.

American Stock Exchange

  • The American Stock Exchange, or AMEX, was established in 1911 as the the New York Curb Market. Started by independent traders who operated on the street, or "curb", it focuses on the stock of small or riskier companies, foreign companies and innovative financial products, such as derivatives, options and exchange traded funds (ETFs) such as Standard & Poor's Depositary Receipts. The NYSE merged the AMEX into its operations in 2008, keeping it open under the name of NYSE Amex Equities to continue AMEX's position as the primary market for small companies.

NASDAQ

  • NASDAQ, or the National Association of Securities Dealers Automated Quotations, began in 1971 as an all-electronic market. There is no NASDAQ trading floor --- every trade is done by computer or by phone. And traders do not have to be members, as they do with the NYSE and AMEX. NASDAQ lists companies from across the spectrum, but is the home of a large number of technology stocks, such as Microsoft and Intel. The requirements for permissible stocks is very liberal compared to those of the NYSE and NYSE Amex Equities; a company must have a minimum share trade price of only $1 and maintain a minimum total value of $1.1 million in outstanding stock. The NASDAQ Small Caps Market deals in companies unable to meet these criteria.

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