Stock markets exist to provide an arena for public companies to list their stock or shares for trading, with the primary aim of raising capital. The stock market not only provides the physical infrastructure but also the legal, financial, administrative and other related support for the various players to trade and invest in these financial instruments. The major players in the stock market consist of not only individuals trading and investing their own personal accounts, but also professionals like Corporate Pension Funds dealing with stock investments, Money Managers, Mutual Funds, Charitable and legal trusts and Insurance Funds.

US Stock Markets

In the United States, the primary markets for stock trading and stock investment are the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the Nasdaq Stock Market. Stocks that are traded on the NYSE and AMEX are normally called “listed stocks”. Listed stocks can normally be identified by their 1 to 3 letter ticker symbols e.g. C (Citicorp), KO (Coca Cola) & of course good ole big blue, IBM. Nasdaq ticker symbols normally consist of 4 or 5 letters e.g. MSFT (Microsoft) and INTC (Intel).

The New York Stock Exchange

Trading on the NYSE and AMEX is still primarily floor based with a specialist controlling the order book for each listed stock although there are plans afoot to speed up the move towards more computerization and online stock trading. The NYSE specialist gets to see all buy and sell orders and has the responsibility to ensure that the stock is traded at a fair value and in an orderly manner. The specialist also has the unenviable task of dealing with any sudden order imbalances by buying or selling from his own inventory in order to maintain stability in the stock price. Order imbalances can be created by external events such as unexpected earnings outlook, upgrade/downgrade by analysts or catastrophic geopolitical incidents like 9/11.

The NASDAQ Stock Market

The Nasdaq Stock Market on the other hand is a completely screen based electronic market which facilitates online stock trading. Liquidity on the Nasdaq is provided by “market makers”, like Goldman Sachs (GSCO) and Merrill Lynch (MLCO) among many others. These market makers can be viewed as the Nasdaq versions of the NYSE specialist, although there are significant differences in how they execute their respective roles.

Due to the Nasdaq’s electronic nature, it is made up of many different “Electronic Communications Networks” or more commonly known as ECNs. Think of ECNs as many different mini exchanges with their own bid & offers and all these are linked together to provide the overall bid & offers for a particular stock on Nasdaq. At this stage, it would suffice to know that you can trade a Nasdaq stock online on any ECN that your stock broker’s trading platform allows you to have access.