A stock is an investment made in a company in exchange for an ownership share. Stock trading lets investors own pieces of businesses, profiting on their gains and sharing the burden of their losses. These stocks are bought and sold throughout the world on marketplaces known as exchanges.
Stock exchanges can be physical or virtual. Physical stock markets are much like anything you've seen on TV: busy, with traders screaming and trading at a rapid pace. Virtual stock markets are just as busy, but all trades are made electronically.
The purpose of these exchanges is to make investing in stocks simple. If there wasn't a centralized marketplace, you would have to solicit sales and purchases yourself. These markets are a convenient way to bring buyers and sellers together without any of the hassles.
If you're looking to start trading stocks, you'll have three basic options:
- American stock exchanges (specifically NYCE and NASDAQ).
- Foreign stock exchanges (such as the London Stock Exchange).
- Trading firms that sell contracts for difference.
Here's what you need to know about each of the various exchanges:
Located on Wall Street in New York City, the New York Stock Exchange is the most famous exchange in the world. It was founded in 1792 in an agreement of two dozen New York City merchants and stockbrokers. Currently, the New York Stock Exchange is the largest stock exchange in the world, with the highest market capitalization of its securities.
The NYSE is a physical stock exchange, where the majority of sales take place on the actual trading floor. Some of the largest companies in the world trade on the floor of the NYSE. These companies include Wal-mart, McDonald's, Coca-cola, General Electric, and Citigroup.
The NYSE is open from 9:30 am until 4:00 pm EST from Monday through Friday.
NASDAQ was created by the National Association of Securities Dealers in 1971 as an alternative for companies who couldn't be traded on a traditional exchange. Unlike the New York Stock exchange, it doesn't have a physical floor, and all the trades take place electronically over the Internet.
When NASDAQ was first founded, many of the stocks trading on it were from the technology sector. Today, NASDAQ is still known as a haven for technology stocks. Some of the world's largest technology firms trade on NASDAQ, including Google, Microsoft, Apple, Netflix, and Tesla Motors.
Like the NYSE, NASDAQ's trading hours run from 9:30 am to 4:00 pm EST.
The United States boasts the two largest exchanges, but countries all around the world have enormous exchanges of their own. Here are some of the biggest ones you need to be aware of:
- London Stock Exchange. This is the primary stock exchange of England, and the largest in Europe. This includes companies like HSBC, BP, and GlaxoSmithKline.
- Japan Exchange Group. JPX was formed by the merger of the Tokyo Stock Exchange and Osaka Securities Exchange in 2013, and is the third-largest exchange in the world. It includes companies such as Toyota, Sony, Honda, Nintendo, and Mitsubishi.
- Hong Kong Stock Exchange. The Hong Kong exchange is a fully operational stock and futures market based out of Central, Hong Kong. It trades many of the largest Asian companies in the world and dominates the world metal exchange since it owns the London Metal Exchange.
Other Places to Trade Stocks
You have other options on trading stocks if you don't want to go through the major exchanges. One option is purchasing CFDs from a trading firm, which is a contract for difference. These contracts are based entirely on a stock's price, but you don't actually own a share in the company. Instead, you're speculating on the price and promising the trading firm to pay the difference if it falls. In turn, the firm will pay you any gains when you decide to sell.
Over-the-counter stocks are another option, although they're incredibly risky. These stocks aren't listed on the major exchanges, and are usually considered penny stocks. Volume for these stocks is low, and there are few success stories. Wal-Mart itself started as an over-the-counter stock in 1970. These success stories are rare, however, and you are usually better off working on a regulated exchange or directly with a trading firm.
Now that you know how stock exchanges work, make sure to create an account with us today to get started!