Stocks are traded on exchanges where buyers and sellers
meet. There are two types of exchanges, virtual and physical.
Physical exchanges are your traditional trade floors where traders are yelling
and signaling to each other to buy and sell stock. Virtual exchanges are
comprised of a network of computers where all the trading is done
In the U.S. there are 3 main exchanges, the NYSE, Nasdaq,
and Amex. The New York Stock exchange is the most prestigious and was
found over 200 years ago. This exchange is the home of America’s largest
companies like McDonald’s and General Electric. This exchange has a
physical location with floor traders actively selling and buying. A
specialist is assigned to each stock whose job is to match the buyers with the
sellers. Once a trade is made, the trade summary is sent back to the
broker who then notifies the investor who placed the order.
Nasdaq is a virtual exchange where all trading is done
electronically. Stocks traded on the Nasdaq are called Over-the-counter
stocks. Most companies that comprise the Nasdaq are technology related.
Market makers are designated for various Nasdaq stocks who provide continuous
bid and offer prices to make a market.
The 3rd largest exchange is the American Stock
Exchange or Amex. Most stocks in the Amex are small cap and derivatives.
Amex is the home of the SPY and DIA, which are both electronically traded funds.