Free Stock Investing Education

Investing Basics Part-1

Terminology

ECN

An Electronic Communication Network (ECN) is a market place where you can buy and sell stock directly if you use a Direct Access Broker or Online Broker. Unlike a stock exchange such as NYSE, companies are not listed on ECN’s.

NASDAQ

National Association of Securities Dealers Automated Quotations (NASDAQ) which is the world's second largest stock exchange after NYSE. Companies that are listed on NASDAQ must meet strict regulatory requirements. Shares in these companies can be bought and sold through a Stock Broker. These stocks can also be bought and sold on ECNs.

NYSE

New York Stock Exchange (NYSE) which is the world's largest stock exchange. Companies that are listed on NYSE must meet strict regulatory requirements. Shares in these companies can be bought and sold through a Stock Broker. These stocks can also be bought and sold on ECNs.

Stock Broker

Stock Brokers electronically forward the buy and sell orders onto a Stock Exchange or to an ECN, whichever gives the stock investor or stock trader a better price.

Stock Exchange

Companies are listed on an exchange such as the New York Stock Exchange (NYSE). They must meet strict regulatory requirements. Shares in these companies can be bought and sold through a Stock Broker. These stocks can also be bought and sold on ECNs.

The Stock Market

Stock Investing Part 1 - The Stock Market; Picture of a bull and a bear with the animal symbols depicting stock investing ups and downs strength and weakness with money in the background for wealth.

The American Stock Market

The American stock market actually consists of two major stock exchanges and several electronic communications networks (ECNs).

The first major exchange is the New York Stock Exchange (NYSE) which dates back to 1792 and is the world's largest stock exchange.

The second major exchange is the National Association of Securities Dealers Automated Quotations (NASDAQ) which was the world's first electronic stock market formed in 1971.

Companies

Public companies are listed on an exchange such as the NYSE or NASDAQ and stock investors can buy and sell shares of these companies.

The share ownership of these public companies is commonly referred to as stock. When a stock investor owns shares in a public company they are referred to as stockholders'.

When a new company is listed on an exchange the process is called an initial public offering (IPO). This is when the public companies shares are available for the first time.

The number of shares issued by a public company is known as the shares outstanding and this can vary over time as the company can buy back its own shares and it can also issue more shares.

The float refers to the number of shares available for stock investors to buy and may be less than the number of shares outstanding, which is due to some of the shares being owned by other companies rather than by stock investors.

Public companies may change the number of shares outstanding and generally do this to alter the stock price.

For example, a company that wants to lower its stock price because it may be perceived to be too expensive can issue a 2-for-1 stock split which effectively doubles the number of shares each stock investor owns, however the stock price will halve.

The net result is that there is no change in the value of stock owned by the investor. The investor now owns twice as much stock that's worth half as much.

Market Participants

Generally it's only the large organizations such as mutual funds that transact on the two exchanges.

Nowadays when a stock investor places an order to buy or sell stock with their online broker the order will probably go to one of several electronic communications networks (ECNs).

These ECNs where specifically setup to handle the huge increase in online stock transactions and are a convenient and cheap way for investors to buy and sell their stock.

Designated market makers work on the trading floor of the NYSE and their role is to match the buy and sell orders received from stock brokers. These orders are usually quite large and nowadays mostly come from institutions such as mutual funds. The NYSE designated market makers used to be referred to as specialists.

The NASDAQ also has market makers who are participating firms registered with NASDAQ and they provide quotes. Nowadays NASDAQ mainly deals with the larger orders from institutions such as mutual funds rather than small orders that typically come from most stock investors.

The Trading Volume reported includes all the trade orders that were executed on the two exchanges and on all of the ECNs for each trading day. Also included are any orders that were filled off market by the stock brokers such as block trades which are typically very large orders.

StockInvesting.today

Stock Analysis for Finance Students and Investors