HOW STOCKS ARE BOUGHT AND SOLD
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buy stock, the company first sells, or offers it. The company arranges
with investment bankers to purchase its securities and sell them to the general
public. This arena is called the primary market. The issuing
company receives capital (money) from the sale.
In the secondary market, stocks are sold to
investors. In a secondary market transaction, money is not received by the
issuing company, but exchanged between investors.
Secondary market trading happens on exchanges and over the
counter. The New York Stock Exchange is an example of a place where traders come
to buy and sell stock. Exchanges are regulated by exchange boards that decide
which companies can list their stock and that make rules about how the stocks
are traded. Stocks are sold at open auction at the exchanges, so everyone knows
which stocks are selling and what their current selling prices are.
In the over-the-counter (OTC) market, stocks are
not auctioned. Their sale is negotiated directly between brokers and buyers.
Often the stocks of new companies and companies that can't get
listed on an exchange are traded this way. The NASDAQ is a computer
network that keeps traders up to date on the trading of OTC stocks.
Finally, let's look at the fuel that keeps the stock
market humming: volatility.