Thursday, January 24, 2008

Word o’ the Day: Exchange (ABC’s of Financial Planning)

Investments are primarily traded – bought and sold – on an exchange. An exchange (commonly called “stock exchange” even though other investments are traded) is simply a marketplace that serves as a central venue to bring together buyers and sellers. In today’s world, the venue can be physical (a place) or virtual (electronic).

A well-known example of a physical exchange is the New York Stock Exchange (NYSE) in New York, NY. Traders gather on the trading floor of the NYSE and conduct business in person on behalf of their customers. As technology progresses though, the NYSE is performing more and more electronic trades. The NYSE has traditionally specialized in listing large U.S. companies.

A well-known example of a virtual exchange is the NASDAQ Stock Market also headquartered in New York but spread all over the world. NASDAQ operates an electronic system that enables its member firms to provide prices and availability for securities they are buying or selling for their customers. NASDAQ has traditionally specialized in listing smaller U.S. companies.

Questions? Kimm@sweetwaterinv.com

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