With an equity market capitalization of $24.5 trillion, the New York Stock Exchange (NYSE) is the largest market in the world. Also called the Big Board, it hosts some of the biggest public corporations in the US. It is a huge marketplace for the buying or selling corporate stocks and securities. As one of the oldest stock exchange platforms, it is a great competition to others.
In this guide, we will look into everything about the NYSE and how it works.
How Does the NYSE Work?
Trading is the activity that occurs on the New York Stock Exchange platform. There are two ways to do it — through brokers or by electronic means. Whichever method of exchange you choose, all transactions are by auction. Both buyers and sellers auction their securities at the highest prices.
Brokers handle trading only on the NYSE floor. They represent any entity buying stocks, retail or institutional investors. Then, they set a bid price which is the value you want to pay for the stock. Your stockbroker may execute an order to sell on your behalf. Yet, this is not complete until a dealer on the NYSE floor finds another broker to buy it.
The dealer will then match your broker with a stock seller who submits an ‘ask’ price. This is often higher than the bid price.
Look at this bidding as selling a house. A dealer is like a real estate agent that brings the buyer and seller together. Yet, before brokers and dealers trade, they must have a trading license. Also, they must get approved by the NYSE.
Some transactions occur by electronic means only. In that case, a computer is a dealer that joins buyers and sellers. All information the brokers and dealers get is by electronic media.
History of The NYSE
The story of the NYSE opens with the historic signing of the Buttonwood Agreement. This happened on May 17, 1792, outside wall street, by 24 New York stockbrokers.
The agreement laid out the rules that govern the trading of securities. Starting with only five securities, it rose in due time to list many popular businesses. This is because the NYSE had a head start as a pioneer stock exchange platform.
The organization has an original title called the New York Stock & Exchange Board. In 1863, it remodeled to what we now know as the New York Stock Exchange. However, in 1971 it become a not-for-profit organization and then a publicly-traded company in 2006. This was also the time it migrated to an electronic system.
What Time Does the New York Stock Exchange Open?
The New York Stock Exchange opens at 9:30 am till 4 pm from Monday to Friday. This represents the regular trading hours. It closes on weekends and most of the federal holidays. Before or after a market holiday, on early-closure days, regular trading closes at 1 PM ET.
It is possible for trading to occur outside normal market hours. They are pre-market and after-hours trading sessions called extended markets. These categories of trades use electronic communication networks (ECNs). So, buyers and sellers do not need a middle person to connect.
Opening & Closing Bells
The opening and closing bells signify the start and end of the trading day. At 9:30 AM ET, the opening bell goes off while the closing bell goes off at 4:00 pm ET. Back in the day, the signal was a gavel that changed to a gong in the late 1800s. The bell only became the official symbol in 1903. This was after the NYSE relocated to 18 Broad Street.
Before 1995, exchange floor managers rang the bell. The NYSE now invites company executives of listed companies to do the honors. Other times, notable figures and celebrities ring the bell.
What Is the Purpose of the NYSE?
The NYSE serves two basic functions. It is a platform for investors to buy and sell their stocks. Also, it allows companies to list their shares. This will enable them to raise capital from potential investors. The advent of electronic trading has made things different. By using computers, the matching of buyers to sellers is now instantaneous.
Why Does the NYSE Matter?
For companies that sell stock to raise money, the NYSE is a perfect getaway. It helps both the government and businesses to access the finance they need to fund their probes. This in turn helps the economy by pumping money from investors into areas of the market that need growth.
How Does the NYSE Make Money?
The bulk of their money comes from transaction fees. This is the money charged to companies or individuals trading on the platform. It covers the cost of providing the services as well as the marketplace.
Also, the NYSE makes money from charging a listing fee. Companies that want to trade on the exchange have to pay for the listing. Other sources of income include taxes and commissions.
What Is the NYSE Composite Index?
This shows the performance of all stocks listed on the New York Stock Exchange. The calculation of this index is dependent on the total return and price return of the stocks. Dividend amounts are not included in the calculation.
The NYSE Composite Index relies on market capitalization. It uses it to figure out the weight of index constituents. To get market capitalization, multiply outstanding shares by the market price per share.
Why Invest in the NYSE?
Investing in the New York Stock Exchange can build your net worth. As a company owner, it will help you to raise funds when you issue more shares. By listing your company, you also get great visibility in the marketplace. This can go a long way in driving up your share price.
Also, your listed shares can serve as currency for your company. You can use this to make acquisitions that will aid the growth and expansion of your business.
How Do You Trade on The NYSE?
The first thing you need to do is find a broker. You also do not need a very large capital to start trading. When you choose the shares you want on the stock exchange, reach an agreement with your broker. Then, deposit money to cover it.
An alternative is to manage your securities on your own. To do this, you can use different online platforms to trade stocks.
Who Are the Main Players on the NYSE?
Now, let us look at the parties that run the game at the New York Stock Exchange:
This person’s role is to ensure the smooth trading of stocks. During working hours, they display their bids and ask for prices. They are a class of market makers. They ensure there is a fair and ordered market on the exchange platform. Also, they help to prevent the market from being volatile. This is often when there are not enough buyers or sellers.
The Floor Trader
This is a stock exchange member that handles transactions from the floor of the exchange. Their role is to provide liquidity and narrow the bid-ask spreads. They trade with their money for their account. Due to the nature of their work, they must pass a screening test before trading. These days, they use electronic systems instead of staying on the exchange floor.
The SuperDOT System
This is an upgraded form of the Designated Order Turnaround. The NYSE uses it to route market orders. It also functions to limit orders from different investors or their agents. This then goes to a specialist on the floor. By this, you can do away with the need for a broker.
What Is the Difference Between the NYSE and NASDAQ?
They are two of the largest stock exchanges on the globe. Here are the differences between them:
- The NYSE has a physical trading floor located on Wall Street. Yet, it hosts most of its trades by electronic means. On the flip side, NASDAQ conducts all transactions via electronic means. It doesn’t have a physical trading floor.
- The NYSE functions as an auction market. Participants deal with each other and enter simultaneous competitive bids. NASDAQ is a dealer market and all participants transact through a dealer. An example is a bank or brokerage company.
- The companies listed on The NYSE are often industrial or blue-chip companies. NASDAQ lays host to growing sectors like internet companies and biotechnology.
What Is the Market Cap of the NYSE and NASDAQ?
Market capitalization is the total value of shares of a listed company. To calculate this, multiply share prices by outstanding shares.
As of January 2021, the market cap of the NYSE stood at $24.5 trillion. NASDAQ stands at $19.3 trillion.
Why You Should Consult a Financial Advisor
Many business owners wonder if there is a need to hire a financial advisor. This may be due to the prevalence of financial DIY tools. Yet, these tools cannot replace the advantage of a skilled financial advisor. Navigating the New York Stock Exchange is not a walk in the park.
While you may have available information, you may not understand them. A financial advisor will sift through the noise and help you make the best decision. They take into account your end goal and finances and tailor strategies to fit it.
As a business owner, you do not have the time to run point on so many activities. Consulting a financial advisor will take the weight off your back. While you manage your business affairs, a financial advisor keeps your money safe.
Also, with plenty of available funds to invest in, you may make a mistake. The expertise of a financial advisor is key to determine which investments are best for you.
In all, financial advisors have the right expertise to guide you. They understand the inner workings of exchange platforms like the NYSE. You cannot do it on your own. Choosing the right financial advisor may be the best decision you make for your business.