Those who own stock know that in order to earn money buying and selling is integral. The value of stocks goes up and down and knowing when to buy and when to sell makes all the difference. The location where this trading goes on is called and “exchange.” The most popular exchange is the New York Stock Exchange (NYSE). Most people have seen pictures of the brokers on the floor signaling to buy or sell. The NYSE is a “listed” exchange where brokers meet on the floor face-to-face to make exchanges. However, there is a second kind of exchange where trades are conducted in a virtual environment. This market is known as an “Over-The-Counter” market, or OTC.
“The National Association of Securities Dealers Automated Quotations,” informally referred to as the Nasdaq is an OTC and the most popular OTC in the world. As an OTC the Nasdaq doesn’t have an actual physical location with floor brokers making exchanges like found with the NYSE. Instead all trades are accomplished by a network of telecommunications and computers which deals use to make their deals. Formerly the largest stock trading companies would only be listed on the New York Stock Exchange. All other second tier stocks were traded on smaller exchanges. Along came the 1990’s and everything changed. That ushered in the tech boom and Nasdaq became the favorite location of huge technological-based companies. The Nasdaq has become the trading center for such companies as Dell, Oracle, Microsoft, Intel and Cisco. The result of this boom is that now the Nasdaq seriously competes against the NYSE.
Within the Nasdaq are certain brokerages which perform the role of “market makers” for particular stocks. A market maker is a firm that accepts the risk of holding a pre-determined amount of shares of a selected security so that they can facilitate the trading of that particular stock. With this design the can continually list bid and ask prices within a pre-determined spread of shares. This way they match up sellers with buyers with their inventory of the shares. The Nasdaq has some 500 of these market makers that help make it such a successful exchange.