Understanding Stock Exchanges
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
One of the largest stock exchanges which all of us know about is the New York Stock Exchange. The entire country runs on it. Every little movement of different government departments makes a difference in the market. NY Stock Exchange is possibly the largest stock exchange in the world.
How do you judge the performance stock exchange? The best thing that describes this is Dow’s main stock. These are supposedly the best, cream of the stocks from each industry. Thus, almost each industry is represented in the Dow which really comes down to looking at the performance of the Dow. You may be looking at the performance of the entire New York Stock Exchange.
Investors have tried to use this for investing and one way is Dow Dodge. Many people invest in it and benefit immensely if it’s done properly. All other exchanges are small. For example, Pacific Stock Exchange which may have a list of some stocks whereas New York Stock Exchange has listing of most of the well- known companies in America. New York Stock Exchange is so good and strong that you cannot get listed as a New York Stock Exchange member unless you have proven and gone through different stages. Small companies sometimes just list them over the company. There is a separate market for penny stocks. That, in itself, is a separate category. But once again I come back to the New York Stock Exchange. Once you are listed on the NY Stock Exchange, you are a viable company in the eyes of the investors. Because NY Stock Exchange is the premium of all the markets and as I have written about only good companies get listed on NY Stock Exchange.
Mention the words “Wall Street” and images of the bustling New York or American Stock Exchange come to mind.
While these are the two largest US exchanges, they certainly aren’t the only ones. In fact, there are a dozen national and regional stock exchanges conducting business daily in the United States, and that doesn’t include the enormous number of shares traded over the counter (OTC) on Nasdaq.
Basically, an exchange is a place where the buyers and sellers get together, either in person or electronically, to trade stocks, bonds, commodities, options, future contracts and other securities. Exchanges provide liquidity, that is, they offer investors the opportunity to buy and sell shares at their fair market value.
The market for shares and other securities is virtually identical in concept to the traditional public market where growers display the produce on counters and consumers come to buy; only the products are different.
The New York Stock Exchange, sometimes called the “Big Board”, is the dominant market for stocks in this country. More than 80 percent of the shares handled by exchanges, including many of the oldest and largest corporations, trade there. Founded in 1972 as the New York Stock Exchange Board, the NYSE lists more than 2,000 companies whose securities are traded under its rules and regulations.
Member firms, brokerages and securities dealers own the NYSE. Memberships, or seats, on the exchange trade at auction like the share of other corporations. These seats, which can cost hundreds of thousands of dollars, permit their owners to buy or sell shares on the trading floor, either for themselves or for their clients.
The only other national exchange is the American Stock Exchange. About 900 companies, mostly smaller than those on the NYSE, are listed on the AMEX, but the number changes as companies move up the NYSE or are “delisted” for failing to meet qualifications. Options are traded heavily on the AMEX; options are contracts that may entitle or obligate holders to buy or sell a fixed number of shares of a security at a stated price on or before a designated date. Options trading is considered speculative and risky.
The remaining exchanges are regional. They are smaller and may trade the stocks of companies located in their regions, plus commodities, futures or options unique to them. Some of them participate in the Intermarket Trading System (ITS), which enables brokers and specialists to represent clients and interact with other markets to obtain the best prices available.
Varying widely in trading volume, technology and investment philosophy, the regional exchanges contribute to the overall liquidity of the marketplace. In addition, they sometimes provide investors with promising opportunities that may not be found on the NYSE or AMEX. The regional exchanges are bounded by the Boston Stock Exchange in the East and the Pacific Stock Exchange in the West. The others include the Midwest Stock Exchange, the result of two mergers; the Philadelphia Stock Exchange, the nation’s oldest: Cincinnati Stock Exchange, the first automated auction market for listed securities; and the Spokane Stock Exchange, which specializes in small mining-company stocks.
If you want to know more about these and other exchanges and what role, if any, they may have in your investment plans, ask your financial advisor.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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