Stock Exchanges and Types of Stocks

May 11, 2009 by admin

Stock Exchanges and Types of Stocks

Characteristics of various types of stocks

Differences in selling methods between the NYSE, AMEX and NASDAQ

Are there opportunities in small, over-the-counter stocks?

Characteristics of various types of stocks

Market capitalization = (shares outstanding) * (price per share)

Large capitalization stocks

• Total market value of over $5 billion
• Generally have limited growth prospects
• Tend to provide larger dividend payouts
• Represented by the Standard & Poors 500 stock index

Mid-capitalization stocks

• Total market value of $1 - 5 billion
• Generally have good growth prospects
• Tend to provide a small dividend
• Represented by the Standard & Poors 400 stock index

Small capitalization stocks

• Total market value of under $1 billion
• Have good growth prospects but may have unproven products
• Usually pay no dividend
• Represented by Russel 2000 index

Differences in selling methods between the NYSE, AMEX and NASDAQ

New York Stock Exchange (NYSE)

• Lists the largest and most actively traded stocks
• Has about 3,000 listed stocks
• Uses an auction system with a specialist
  • Specialist merely tries to match orders with only moderate trading for his own account

American Stock Exchange (AMEX)

• Lists a fair number of energy companies
• Provides trading in a number of derivative securities
• Uses an auction system with a specialist like the NYSE

NASDAQ

• Lists a number of high technology companies
• Lists many small, lightly traded companies
• Also lists large companies like Intel and Misrosoft
• Has about 5,000 stocks
• Uses a maket maker system
  • Market makers often hold large inventories of stock and actively trade for their own account

Are there opportunities in small, over-the-counter stocks?

There can be very good opportunities in small, over-the-counter stocks

But as a rule, don't buy small stocks that a broker tries to sell to you

Prices on these small-company stocks are easily manipulated

Prices get ramped up, you buy in near the top, and then you're left holding an illiquid stock as others exit ahead of you