The stock market is the location where the shares of stock are traded.  There are basically three stock markets, the New York Stock Exchange (NYSE),  NASDAQ and the American Stock Exchange.

The NYSE is the stock exchange that everyone generally thinks about when they think of the stock market.  This is the example given in the movies when someone wants to buy the stock.  It is the picture of a wild and high paced environment where millions of shares are bought and sold every day.  The NYSE is in New York on Wall Street.  Within the NYSE, there is what is known as a specialist that does the actual purchasing and selling of the stock.  They do this at what is known as a trading post.

Prices are determined by the auction method.  A seller indicates the price they are willing to sell the stock for and the buyer indicates the price they are willing to buy the stock for.  When the two come to an agreement, the stock ownership is transferred.  For the small investor, this is rather transparent.  On the internet are websites that report on the current bid (buying price) and ask (selling price) for all stocks.  We, the small investor, keep an eye on these prices and when they reach the price we are willing to pay for or sell, then we act.

The larger stock investors and institutions are the individuals that are really driving the price.  They are the ones who are working directly with the specialist to move the stock prices up and down.

The NASDAQ is the second exchange.  It is also known as over the counter exchange because there is not an actual exchange.  On the NASDAQ, brokerages act as market makers for various stocks.  A market maker provides continuous bid and ask prices.  They may match up buyers and sellers, but generally they have an inventory of the stock they are the market maker for and perform the transactions from this inventory.

The American Stock Exchange (AMEX) used to be a bigger exchange but due to the rise of the NASDQ, it has taken a back seat. Almost all stock trading on the AMEX is now small cap stock or derivatives.

An individual starting to look at investing in the stock market may ask what makes the prices of stock move up and down.  It is a function of supply and demand as in all economic transactions.  If there is too large of a supply of a companies stock available, the price will move down until it reaches a point where buyers are willing to purchase it.  If there is too small a supply available, then the price will move up until more sellers are willing to sell.  This happens a lot and is quite invisible to each of us.

Tags: Stock Market