When we talk about the stock market, it’s not like talking about the supermarket or the farmer’s market. We’re not talking about the place we go to buy or sell stocks. We’re talking about that amorphous economic phenomenon made up of the ever-changing value of thousands of companies. But, for most of history, if you wanted to buy and sell something you still needed a place to do it. When you’re talking about stocks, those places are stock exchanges. The word may be different, but the concept is the same.
The vast majority of stock trading in America is done through just a few large US stock exchanges. The Cherries database uses stocks from the three largest stock exchanges. This means that every portfolio you create on Cherries is based on thousands of stocks. The platform can create millions of combinations and then choose the one that makes the most of the criteria you entered. When you create your Cherries portfolio, you don’t need to differentiate between the stock markets. But in real-world trading, they each function a little bit differently.
On May 17th, 1792, 24 brokers stood on the pavement on Wall Street in New York and signed a document agreeing to only trade with each other and to take a set commission from clients. This document, called the Buttonwood Agreement, would eventually become the basis for the New York Stock Exchange. The exchange is located on Wall Street to this very day and an entire financial district has grown up around it.
True to its history, the NYSE is an auction-based exchange. That means that professional brokers are physically located on the exchange floor. These specialists are employed by companies, not by the stock exchange. Buyers and sellers gather round the specialists who auction off shares of their client’s stock and facilitate transactions. In 1995, traders began using handheld computers and in 2007 the NYSE instituted an automated electronic exchange for most stocks. Today, nearly 3,000 stocks are traded on the NYSE, amounting to approximately 1.46 billion shares traded per day.
Despite being almost 200 years younger, NASDAQ is second only to the NYSE in the market value of shares traded. In 1971, NASDAQ was opened as the world’s first electronic stock market. It is based on an OTC (Over The Counter) system where buyers and sellers trade directly with each other. NASDAQ was the first US stock market to offer online trading and has hosted IPOs for a lot of big-name tech companies.
Like the NYSE, NASDAQ has strict requirements for a company that wants to offer shares. For example, in addition to initial listing requirements, shares must stay above $4 or risk being delisted.
AMEX, which stands for the American Stock Exchange is actually no longer AMEX. In 2008 it was acquired by the NYSE Euronext and eventually become NYSE American. AMEX began as the Curb Market – a loose organization of brokers who would trade on the Broad Street sidewalk in Manhattan in the early 20th century. They would buy and sell securities by shouting to the windows of brokerage houses above. In 1921 they moved indoors and by 1929 the Curb Exchange listed more foreign companies than any other US exchange. NYSE American is one of a number of US stock exchanges to use a 350-microsecond delay in trading. It is supposed to reduce the advantage of speed used by many high-frequency traders.
So What Does This Have to Do with Cherries?
The key to a stable portfolio is diversity. The more securities you own, the less you’ll be affected if one of them sinks. The same is true of having more sectors represented and more types of investments. By choosing stocks from all major US exchanges, we can make sure that your portfolio is getting a wide variety and can be truly optimized.