Understanding the Stock Market: Key Characteristics & Exchanges
The stock market in the United States is made up of stock exchanges such as the New York Stock Exchange (NYSE) and NASDAQ and self-regulating organizations such as the Pink Sheets, where smaller companies trade over the counter. The NYSE has acquired the American Stock Exchange, the Pacific Stock Exchange, the Philadelphia Stock Exchange, and others.
Growth Capital
Issuing of stock is the cornerstone of capital formation for enterprise in capitalist economic systems. The stock market provides a way for companies to issue stock to the investing public.
Liquidity
The free and transparent trading that takes place in the stock market prices all stocks according to demand and supply, bid and ask. In this way it provides liquidity for investors seeking to transact sales of their holdings through this active pricing mechanism.
Transparency
The public nature of trading maintains transparency in financial transactions. Efficiency, growth, freedom and variety are all possible because of transparency that allows all participants to access the bid and ask prices of all securities traded on the market and because all participants have access to the same information.
Organization
The stock market provides a degree of protection to investors through oversight by the SEC, FINRA and other legal regulatory and self-regulating bodies on state and professional levels that serve to create an organized and liquid group of stock exchanges and stock trading platforms.
Economic Indicator
One of the ten components of the Leading Economic Indicators is made up of the Standard & Poor's 500 Stock Index, one of the major stock market indexes. The direction of trading activity in the stock market provides an indication of the state of commerce and overall confidence in the economy.
Regulated Risk/Reward
An organized and regulated stock market serves as a way for investors who seek large returns on their investments to access organized, liquid, regulated and transparent risk investing.
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