In the United States, there are three major Stock Markets, the New York Stock Exchange (NYSE), the American Stock Exchange.(AMEX) and the National Association of Securities Dealers Automated Quotation System (NASDAQ), the largest electronic stock exchange in the US. The purpose of a stock exchange is to facilitate the buying and selling of stocks. A company is listed on only one exchange.
Stocks are traded in shares, where each share of stock signifies a piece of ownership of the company. How big a piece is determined by how many shares of stock the company has issued. Shares are initially offered through an Initial Public Offering or IPO. The money raised through an IPO may be used to pay back investors in addition to funding the company for future expansion or business. A company may compensate certain workers through stock options, thereby giving ownership to workers, but potentially diluting the value of each share of stock.
Even if you do not own any shares of stock, what happens in the stock market does have an impact on your life. Students need to be reminded that a product would not exist without funding for manufacturing and product development. Their favorite sneakers, iPod, or cell phone would most likely not exist if it weren’t for the money raised in the stock market. Even those companies that build or manage the malls that are a favorite place for teens to hang out at are on the stock exchange.
After an initial public offering a company may raise more money by selling more stock. Because selling more stock can also make each share of stock worth less, companies that have a good credit rating may issue corporate bonds to raise money.
Companies would not exist for very long if someone did not buy their products or services. When a company sells its products and services and makes a profit, it not only has money to create more products and services, it also has money that it may give back to its investors or stockholders. The company would then issue what is called a dividend.
The value of the stock may change at any time during the business hours of the stock market. The value is how much someone else is willing to pay for the stock. How much someone is willing to pay is usually based on how well the company is perceived to be valued now and its potential value for the near future. Whether or not a company pays dividends may also be a factor that determines the price of the stock. As the trading has become more computerized and global, the exchanges have begun to offer off hours trading of stock, where trades occur only when there is a direct match of sell and buy requests.
The history of the stock market in the US is as found on
: “If we trace the roots of the New York Stock Exchange to its beginning, we would find that it started out as dirt path in front of Trinity Church in East Manhattan 200 years ago. At that time, there was no paper money changing hands. The idea of stocks was yet to be created. Rather, silver was traded for papers representing shares in cargo, that was coming in on ships every day. The trade flourished.”
The American Revolution was expensive and the new Colonial government needed to pay for the war operations. They sold bonds, which are pieces of paper bought for a set price. After a set period of time, the bonds could be redeemed for the amount paid with the addition of interest. Around the same time, the country’s first banks started to sell parts or shares of their own companies to people in order to raise money. This would be one of the first initial public offerings. They sold part of the company to whomever wanted to buy it, thus the beginning the modern day stock market.
“Wall Street was becoming a major center of these transactions, and in 1792 twenty-four men signed an agreement that started the New York Stock Exchange (NYSE). They agreed to sell shares or parts of companies between themselves and charge people commissions, or fees, to buy and sell for them. They found a home at 40 Wall Street in New York City. As they grew they later moved into what is currently the New York Stock Exchange Building.”
As the industrial age came to be with more companies and products, the stock market grew. In the1970’s, the first electronic exchange (NASDAQ) came into being. And in 2007 the NYSE merged with Euronext, to become a global electronic market. NASDAQ and AMEX merged, but continue to operate as separate exchanges.