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Investing Basics
AMEX, NASDAQ, OTC and Other Exchanges
by InvestorGuide Staff (Write for us!)
(Click on the links within the article to get definition of that word)
Amex
The American Stock Exchange (the "Amex") started as an alternative to the NYSE. It
originated when brokers began meeting on the curb outside the NYSE in order to tradestocks that failed to meet the Big Board's stringent listing requirements (in fact, until the 1950s it was actually known as the "Curb Exchange"). Nowadays, of course, the Amex has its owntrading floor, just like the NYSE, and it operates in much the same way except that it lists mostly small and mid cap stocks that don't meet the NYSE's qualifications. In particular, it specializes in energycompanies, start-ups, and biotech firms, as well as in options and other derivatives . In November of 1998 the parent company of the Nasdaq purchased the Amex and combined their markets, although the two continue to operate separately.
Nasdaq
Unlike the Amex and the NYSE, the Nasdaq (once an acronym for the National Association of Securities Dealers Automated Quotationsystem) does not have a physical tradingfloor that brings together buyers and sellers. Instead, all
trading on the Nasdaq exchange is done over a network of computers and telephones. The Nasdaq began when brokers started informally trading via telephone; the network was later formalized and linked by computer in the early 1970s. In the subsequent decades it has become a serious rival to the NYSE, as certain big-name technology companies such as Microsoft and Cisco have opted to list on the Nasdaq instead of the Big Board. In November 1998 the parent company of the Nasdaq purchased the Amex, although the two continue to operate separately.
The term "over the counter" (OTC) has changed in meaning over the years. OTC used to simply refer to any trading system that did not have a trading floor. Under this definition, then, the Nasdaq would be considered OTC. As the Nasdaq has grown in prestige during the last few decades, however, the term OTC has changed to refer instead to those stocks that do not meet the listingrequirements of
any of the major exchanges, including the Nasdaq. This means that today's OTC market primarily includes penny stocks and other marginal stocks. Today's OTC market is sometimes referred to as the "pink sheets" since that is the color of the paper on which the penny stocklistings are printed.
The OTC market presents the averageinvestor with several problems. First, OTC stocks are usually very risky since they are the stocks that are not considered large or stable enough to trade on a major exchange. They also tend to trade infrequently, so it can be difficult to find a buyer for a stock that you wish to sell. Making matters worse is the fact that pricinginformation for these stocks is incredibly difficult to obtain. You will have to rely on your broker to get the information for you, and you have no guarantee that it is accurate. For these reasons, we recommend that only experienced investors trade OTC stocks.
Regional and Foreign
In addition to the exchanges mentioned above, there are also several regional
exchanges around the country, including the Boston Stock Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange, and the Chicago Stock Exchange. These exchanges originally listed only regional companies but now list both regional and national stocks.
There are also stock exchanges in foreign countries, such as the London Stock Exchange and the Nikkei Exchange in Japan. These exchanges are usually similar to the ones found in the United States, although there are differences depending upon the country in which they are located.
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