Investing Advice

New York Stock Exchange

Stocks that are bought and sold on the NYSE and the American Stock Exchange (AMEX) use an auction system.

Picture this: scattered throughout the huge floor of the exchange are trading posts, each manned by a trader called a "specialist". Each specialist conducts the stock trading for one big company, such as IBM, or maybe a number of companies that have lighter trading volume. Each trading post has a computer terminal on a pedestal, and is surrounded by floor brokers representing the big brokerage houses (or even their own accounts).

Each floor broker wears a different color jacket so that the specialist knows which firm the he or she represents.

At 9:30 AM, the bell rings and the people with the colored jackets start yelling what their clients want to buy and the price they are bidding, and others yell out what their customers have to sell, along with the price they are asking. Each, of course, wants to get the best price they can. With all the noise, many have learned to communicate with hand signals.

The specialist acts as a middleman, matching buyers with sellers. If there is a seller and no buyer, the specialist will give a bid price, offering to purchase the shares for his own or his company's account. When there are buyers, and no sellers, he will sell from his firm’s inventory, thus keeping an orderly and continuous market.

As each trade is completed, he enters the numbers on his computer terminal and the trade is instantly transmitted around the globe. Throughout the day from their offices above, the floor brokers in their colored jackets receive fistfuls of orders with new trades to execute.

The specialist doesn't have to move the stock price up or down unless he is the only one bidding. When more shares are offered for sale than there are orders to buy, the buyers (or the specialist) begin offering less, and the share price moves down.

When there are more buyers than sellers, the buyers are competing for the limited shares being sold and so quickly agree to pay the higher prices that the sellers are asking. The sellers, sensing this, keep raising their asking price and so the share price moves up.

Not all the trades happen on the floor of the exchange. In fact, only about 20% are actually auctioned on the floor. A trader in an office above watches the trading on his computer screen, matching buyers and sellers of the thousands of smaller transactions flowing in all day long.
 

While in New York, you may like to visit the NYSE, tour the exchange’s museum, and watch the action from the visitor's gallery. Call 212-656-5165 for free tickets.

Other Stock Market Basics Topics:

  1. Stock Market Basics
  2. Why invest in the stock market?
  3. Why Sell Stock?
  4. How are shares bought and sold on the NASDAQ?
  5. How stocks are traded on the New York Stock Exchange
  6. What are ECNs?
  7. Supply and Demand
  8. American Stock Exchanges
  9. International Stock Exchange
  10. What fuels demand for a stock?
  11. More to Know About Stock Trading
  12. Limit Orders
  13. Market Capitalization
  14. Preferred Stock
  15. How to Buy Stock?
  16. How much money do you need to open a brokerage account?
  17. Money Market Funds
  18. Margin Loans and Investment
  19. Corporation Executive Pay
  20. How much money do you need to open a brokerage account?

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