How and Where Stocks Are Bought and Sold?

Although there are more than 5 million corporations in the United States, only about 5,100 corporations are publicly traded companies that sell stock in the U.S. stock market. The remaining corporations, along with the millions of sole proprietorships and partnerships, are private firms, which means they do not issue stock that is bought and sold on the stock market.

Just as the “automobile market” refers to the many places where automobiles are bought and sold, the “stock market” refers to the many places where stocks are bought and sold. In the case of stocks, the “places” are both physical and virtual, as the electronic trading of stocks has become increasingly important. Still, when many people think of the U.S. stock market, they think of the New York Stock Exchange (NYSE) building, which is located on Wall Street in New York City.

The NYSE is an example of a stock exchange where stocks are bought and sold face-to-face on a trading floor. Trading takes place every business day between the hours of 9:30 A.M. and 4:00 P.M.

Many of the largest U.S. corporations, such as IBM, McDonald’s, and Wal-Mart, are listed on the NYSE’s Big Board. In recent years, much of the trading on the NYSE has been done electronically, although some trading still takes place on the floor of the exchange.

Trading on the NASDAQ stock market, which is named for the National Association of Securities Dealers, is entirely electronic. The NASDAQ is an example of an over-the-counter market in which dealers linked by computer buy and sell stocks.

Dealers in an over-the-counter market attempt to match up the orders they receive from investors to buy and sell the stocks. Dealers maintain an inventory of the stocks they trade to help balance buy and sell orders.


Keep in mind the distinction between a primary market and a secondary market. In the stock market, just as in the bond market, most buying and selling is of existing stocks among investors rather than newly issued stocks supplied by firms. So, for both stocks and bonds, the secondary market is much larger than the primary market.

Traditionally, an individual investor purchased stocks by establishing an account with a stockbroker, such as Merrill Lynch (now part of Bank of America). Brokers buy and sell stocks for investors in return for a payment known as a commission. Today,many investors buying individual stocks use online brokerage firms, such as E*TRADE or TD AMERITRADE. Online brokers typically charge lower commissions than do traditional brokers, but they also do not provide investment advice and other services that traditional brokers offer.

Many investors prefer to buy stock mutual funds rather than individual stocks. Because stock mutual funds, such as Fidelity Investment’s Magellan Fund, hold many stocks in their portfolios, they provide investors with the benefits of diversification.

The 5,100 publicly traded U.S. corporations represent only about 10% of the firms listed on stock exchanges worldwide. Although the NYSE remains the world’s largest, foreign stock markets have been rapidly increasing in size. The shares of the largest foreign firms, such as Sony, Toyota, and Nokia, trade indirectly on the NYSE in the form of American Depository Receipts, which are receipts for shares of stock held in a foreign country.

Some mutual funds, such as Vanguard’s Global Equity Fund, also invest in the stock of foreign firms. It is possible to buy individual stocks listed on foreign stock exchanges by setting up an account with a local brokerage firm in the foreign country. Although at one time only the wealthy invested directly in foreign stock markets, today the Internet has made it much easier for the average investor to research foreign companies and to establish foreign brokerage accounts.