In: Categories » Legal and finance » Stocks and mutual funds » The Stock Market and Exchanges
As an investor, you really don’t need to know the internal workings of the New York Stock Exchange, Nasdaq, American Stock Exchange, or any other exchange. Licensed stockbrokers can do all the work for you by locating the appropriate exchange for your trade.
All three major exchanges (NYSE, Nasdaq, and AMEX) have their own requirements for listing a stock on their exchange. The specifics of these different requirements are not important for you to know, but the fact that a stock is listed on a major exchange is a valuable piece of information. All listed stocks have been scrutinized and must file a wide range of reports with the Securities & Exchange Commission (SEC), which regulates exchanges. The SEC does not assure you that the stock of any listed companies will serve your investment needs, but it does provide some assurance that the company is reputable. You can access all SEC mandatory company reports online by visiting the SEC Web site at www.sec/gov/ edgarhp.htm. The Web site is known by its acronym, EDGAR, which stands for Electronic Data Gathering, Analysis, and Retrieval.
You need to be very cautious if you choose to purchase stocks beyond those listed on the NYSE, Nasdaq, and AMEX. You almost certainly will be getting into lightly traded stocks called a “thin market.” Brokers take little interest in these shares and do not actively try to sell in these markets.
Understanding IPOs
Another term you may see or hear is IPO. When companies are added to the listings of the major exchanges, they will begin to issue stock for trading on the exchange on which they are listed. This first offer of shares for trading is called an Initial Public Offering or IPO. IPOs get a lot of attention, and some even generate trading excitement. When a company goes public and offers its first shares, various brokerages get an allocation of shares that are offered at a price determined by discussions between the company and the various brokerages. The brokers then let some of their customers know of this new IPO and what the initial offering price will be. Favored customers of brokerages may have an opportunity to make some quick money if the market price of IPO shares rises sharply. As a new investor you won’t be getting too many chances to get in on IPOs. In fact, unless you’ve worked with a full-service broker for a while, you’re not going to have a chance to buy the IPO shares at the set offering price. The important thing for you is not to get beguiled by all the hoopla about IPOs and wish you could be in the deal. Most IPOs, after an initial surge, drop quickly in price, below even their initial offering price.
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