Trading stocks is business at its busiest
By ANNA VANLANDINGHAM
© St. Petersburg Times, published February 22, 2001
That is where the simplicity ends. Finding the right match of seller and buyer is a fast-paced process because so many factors can affect the price of a stock -- and often do -- in a single day.
Several different exchanges exist worldwide, but let's focus on the New York Stock Exchange, known as the NYSE, and the National Association of Securities Dealers Automated Quote system -- commonly called the NASDAQ (NAS-dak). They are the most widely used exchanges in the United States.
Companies may sell their stock on either of these exchanges, depending on a number of criteria, such as size of the company, number of shares outstanding and the price of each share. There are certainly more requirements than these, but this will give you an idea as to why certain stocks may or may not be listed on various exchanges.
Generally, companies just starting out often do so on the NASDAQ. A company's earnings or shares outstanding do not have to be as high to be traded on the NASDAQ as they do on the NYSE. Most of the "dot-coms," those new Internet-based companies, start out on the NASDAQ. Often a company will grow in size, and sales, and transfer over to the bigger NYSE. One of our favorite restaurants, Outback Steakhouse based right here in Florida, just did that. Companies may choose to make this change for a variety of reasons, including the added prestige of being listed on the NYSE.
Now let's take a look at how a trade occurs on each of the two exchanges.
The "exchanging," or trading, as it is called at the NYSE, takes place by open bids -- or offers -- on the exchange floor. This is done by brokers who act as agents for companies or individual investors. Traders buy on behalf of their clients, buying for the lowest price and selling at the highest price offered. Here is a simple view of how it works:
The trading day begins at 9:30 a.m., Monday through Friday. It ends at 4 p.m. A real bell rings to mark the open and close of each day.
Companies that buy and sell stocks for customers are called brokerages. They rent booths on the NYSE floor where their people can work to make trades each day. The NYSE also rents booth space to specialist firms, sort of brokers for the brokers. The specialist keeps an electronic list of unfilled orders -- such as XYZ wants to sell shares of Coca-Cola when the price reaches $90 a share, and company ABC wants to buy shares of Coca-Cola when the price reaches $90 a share. (In that case, a trade would definitely occur!)
Near the specialists' booths are trading posts. Each company trades at only one assigned post on the floor. Several companies may share a post, but a specific company's stock can be bought or sold only at its assigned post. This is to make sure trading can be tracked correctly. The trading day is frenetic, and all must guard against confusion.
The floor brokers can trade with the specialists' help to find matches. However, if two brokers will show up at the same post at the same time (like the ABC company's broker and the XYZ's above), they will just trade. Timing is crucial, because a price can change at any time.
Each post has a computer display that shows the stocks traded, each stock's last sale price and the number of shares traded. This helps everyone keep track. Remember, prices can change by the second.
After every trade, a worker on the floor called a reporter records the stock's symbol, price at which it was traded and the name of the brokerage that made the trade (even if it was for an individual). This becomes part of the NYSE's permanent record.
When the floor broker makes a trade as requested, she sends the trade details back to her home brokerage office.
Trading on the NASDAQ is the same hunt for the right buyer and the right seller -- the auction. But there is one very important difference -- this one is done in cyberspace!
The NASDAQ is a massive electronic network -- not a physical building -- that lets brokers trade using a computer. The network updates stock prices constantly and eliminates the need to actually meet on a trade floor. This network lists companies from small firms just starting out to large corporations. Many of the listings are in technology, communications, retail and other high-growth areas.
NASDAQ traders complete transactions by connecting electronically through computers. There is no specific building that serves as a place where trades take place as was true at the NYSE, even though NASDAQ does have a corporate office to house those who administer their exchange. The NASDAQ exchange is nothing more than an electronic market where brokers, in their own offices as far apart as Anchorage, Alaska, and Key West, may make transactions for their clients. Obviously, before the emergence of the technology we have today, this kind of market would have been impossible.
Next week in Money Stuff we'll take a look at all those symbols that reflect how a stock is doing at any point in time.
Now that you know a bit about the history of the stock market and how a trade works, you're probably itching to give it a try.
Then think about joining your classmates in the Florida Stock Market Simulation. You get a fake account of $100,000 to invest over a period of time. And you can compete with kids your age all across the state. Check it out at floridasms.com.
Teachers: Training and teacher guides are available to help you develop the best use of the Florida Stock Market Simulation for your class, while meeting many of the objectives of FCAT. Corporate classroom volunteers can receive a quick volunteer's teaching guide from the Florida Council on Economic Education to help you make the most of your time in the classroom.
Parents: You can practice, too. The Florida Council runs a special competition division just for adults -- so you won't have to compete with your own children (who usually outperform the adults). This program is endorsed by the Florida Department of Education and supported by the Florida State Comptroller's Office through its investor education fund.
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Anna Vanlandingham is an advanced placement economics teacher at Lake Mary High School in Seminole County. She has been a teacher for 20 years and has won several national and state economic education awards. Chapters on the securities industry have been reviewed by the Florida State Comptroller's Office, which is responsible for protecting consumer rights in the securities industry.
About the Florida Council on Economic Education
Money Stuff was developed by the Florida Council on Economic Education and project director Fonda Anderson. The council is a statewide non-profit organization founded in 1975 to educate K-12 teachers and students about the free enterprise system and to instill in them an appreciation for a market economy. For more information on the council's programs for teachers and students, please call (813) 289-8489.
About Newspaper in Education
The St. Petersburg Times devotes news space to NIE features throughout the year, including this classroom series. The Times' NIE department works with local businesses and individuals to enrich the classroom experience by providing newspapers, supplemental guides and educational services to schools in the Tampa Bay area. To find out how you can become involved in NIE, please call (727) 893-8969 or (800) 333-7505, ext. 8969.
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