How Stocks Trade
It is important to have a place where buyers and sellers can trade their securities. These places are known as Exchanges where buyers and sellers decide on a price. Exchanges can be physical locations where transactions are carried out on a trading floor or virtual locations using computers to trade electronically. There are several nationally recognized Exchanges to do business.
The New York Stock Exchange
A well known Exchange, the NYSE was created over 200 years ago and is the market of choice for the country's largest companies. Being a physical location in the heart of New York City's financial district, buy and sell orders come from brokerage companies who are members of the Exchange. The orders are placed with a person known as a Specialist, whose job is to match buyers and sellers. Prices are determined by finding the highest amount any buyer is willing to pay and the lowest price at which someone is willing to sell.
Also known as an Over-the-Counter (OTC) Exchange, the Nasdaq is a virtual Exchange where trading is executed with computers.
American Stock Exchange
The third largest exchange in the U.S., the AMEX, has seen its role reduced with the increased popularity of the Nasdaq. Currently, the AMEX trades primarily small company stocks.