When you buy a stock, you may not pay a lot of attention to the
exchange on which it’s listed. After all, does it really
matter?
When you buy a stock, you may not pay a lot of attention to the exchange on which it’s listed. After all, does it really matter?
Actually, distinct differences exist between the various stock exchanges – and certain types of stocks are more likely to be found in one exchange than another. Therefore, you might find it useful to become somewhat familiar with the following exchanges:
– New York Stock Exchange
Also known as the “Big Board,” the New York Stock Exchange (NYSE) is probably the best-known exchange in the world. Of all the U.S.-based exchanges, the NYSE has the most stringent set of stipulations for listed companies. For example, all NYSE-listed companies must meet certain minimum requirements covering market capitalization, operating cash flow and earnings. NYSE companies also must provide shareholders with certain voting rights.
The NYSE contains some of the biggest and best-known companies from a variety of industries. In other words, the NYSE contains big, strong, established companies. Yet, just because a company is listed on the NYSE, it does not mean the stock will be immune to the ups and downs of the market. But you can be assured that the NYSE, before listing a company, will examine it to help make sure they meet the listing requirements.
– American Stock Exchange
The “AMEX” began as an alternative to the NYSE. Today, the AMEX operates in much the same way as the NYSE, but AMEX-listed stocks tend to be small- and mid-capitalization stocks that don’t generally meet the NYSE’s qualifications.
Of course, this description of AMEX-listed stocks might lead you to believe that the AMEX is a more “risky” exchange than the NYSE. Yet, you can find many well-known names on the AMEX. Also, the AMEX trades many NASDAQ-listed stocks. (In 1998, the parent company of the NASDAQ purchased the AMEX.)
– NASDAQ
Unlike the NYSE and AMEX, the NASDAQ does not have a physical trading floor on which buyers and sellers converge; all NASDAQ trading is done via computer and telephone. A great many technology stocks, including some big names, have found their home in the NASDAQ.
– Over the Counter Exchanges
“Over the counter” (OTC) used to refer to any trading system without a trading floor – so, under this definition, NASDAQ would be considered OTC. But as the NASDAQ has grown in prestige, the term “OTC” has evolved to refer to those stocks that don’t meet the listing requirements of any of the major exchanges, including the NASDAQ. Consequently, today’s OTC market primarily includes “penny” and other marginal stocks. As such, OTC stocks are quite risky.
Ultimately, you probably don’t want to let a stock’s listing determine whether you buy it or not, but, by knowing where your stocks are listed, you may be able to get another perspective on your portfolio’s diversification – and, as you know, diversification can be a key to investment success.
