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Before naming the major stock exchanges in the US I would like to discuss what happens in the US stock exchanges.
Important Information on Stock Exchanges (Applies to all stock exchanges in the world):
When you buy a company’s stock you become one of the owners of that company and are fully entitled to get the benefits of that ownership. Do not get too excited, you are only a part-owner and your rights and benefits are limited to the number of shares in percentage terms you own. For example, if a company declares a dividend of 100 dollars to be shared among its shareholders and suppose there are only 100 stocks of that company floating in the market and you own just one share, then you will get one dollar as a dividend. One share of 100 is 1% therefore the dividend you will receive will also be one percentage.
Some More Information on Stock Markets:
There has to be a place in a country where shares, bonds, ETFs, commodities, derivatives and other financial instruments should transparently exchange hands. The marketplace where these financial securities exchange ownership is called Stock Markets or Stock Exchanges.
A few years back this was done physically where traders and brokers used to meet in the marketplace and bought and/or sold shares. Now due to the advancement of technology, it’s done electronically. A large volume of trades is also done by machines (computers) called algorithmic trading. Algorithmic trading is mostly done by high-net-worth (HNI) individuals and trading firms.
New companies can float their stocks, also known as IPO (Initial Public Offering), on the stock exchanges but every exchange has some requirements that a company needs to show. These are financial reports, audited earnings, minimal capital requirements etc.
An Initial Public Offering (IPO) is a process of offering shares of a private company to the public in a new stock issue. An IPO allows a company to raise capital from public and institutional investors.
Once a company is listed its financials are open to the public so that they can decide whether to invest or not. However, the benefit is that the company becomes visible to potential clients which leads to increased business.
Major Stock Exchanges in the U.S.
There are two major stock exchanges in the U.S.A:
1. New York Stock Exchange (NYSE) – The New York Stock Exchange is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world’s largest stock exchange by market capitalization of its listed companies at US$30.1 trillion as of February 2018. Website: https://www.nyse.com/ Address: 11 Wall St, New York, NY 10005, United States
2. NASDAQ – The NASDAQ Stock Market is an American stock exchange based in New York City. It is ranked second on the list of stock exchanges by market capitalization of shares traded, behind the New York Stock Exchange. Website: https://www.nasdaq.com/. Address of NASDAQ Global Headquarters: 151 W. 42nd Street, New York City, NY, 10036, United States. It has branches all over the world.
More Details – The New York Stock Exchange (NYSE)
NYSE was founded in 1790. In April 2007, the New York Stock Exchange merged with a European stock exchange known as Euronext to form what is currently NYSE Euronext (https://www.euronext.com/en).
NYSE Euronext also owns NYSE Arca (formerly the Pacific Exchange) – https://www.nyse.com/markets/nyse-arca
A company can be listed on The New York Stock Exchange only if a minimum of $4 million is floating in shareholder’s equity. Traders/visitors can visit the exchange’s building on Wall Street in New York City however since almost all of the trading is done via the internet electronically, traders rarely visit the exchange.
There was another stock exchange called The American Stock Exchange (AMEX). It was once the third-largest stock exchange in the United States, as measured by trading volume. It was acquired in 2008 by NYSE and today it is known as the NYSE American a.k.a NYSE MKT – https://www.nyse.com/markets/nyse-american.
Unlike NASDAQ and NYSE, AMEX focused on Exchange-Traded-Funds (ETFs).
An Exchange-Traded-Fund (ETF) is a type of investment security that operates more or less like a mutual fund. An ETF will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. It’s kind of a mutual fund traded like a stock.
NASDAQ has an edge over The New York Stock Exchange (NYSE) for its very modern computerized infrastructure and lower listing fee than NYSE. Major gains like Google, Amazon, Apple and Microsoft are listed here.
Some Other Relatively not so Popular Stock Exchanges in the United States
Boston Stock Exchange (BSE) – is made up of the Boston Equities Exchange (BEX) and the Boston Options Exchange (BOX). The Boston Stock Exchange is a regional stock exchange located in Boston, Massachusetts. It was founded in 1834, making it the third-oldest stock exchange in the United States. On October 2, 2007, NASDAQ agreed to acquire BSE for $61 million.
Details here: https://en.wikipedia.org/wiki/Boston_Stock_Exchange
Chicago Board Options Exchange (CBOE) – The Chicago Board Options Exchange, located at 433 West Van Buren Street in Chicago, is the largest U.S. options exchange with an annual trading volume of approx 1.27 billion contracts at the end of 2014. It must have increased now. CBOE offers options on over 2,200 companies, 22 stock indices, and 140 exchange-traded funds. They have an options education section here.
Chicago Board of Trade (CBOT) – owned and run by CME Group Inc. The Chicago Board of Trade, established on April 3, 1848, is one of the world’s oldest futures and options exchanges. On July 12, 2007, the CBOT merged with the Chicago Mercantile Exchange to form the CME Group. CBOT and three other exchanges now operate as designated contract markets of the CME Group.
Chicago Mercantile Exchange (CME) – owned and controlled by CME Group Inc. The Chicago Mercantile Exchange is a global derivatives marketplace based in Chicago and located at 20 S. Wacker Drive. The CME was founded in 1898 as the Chicago Butter and Egg Board, an agricultural commodities exchange. Originally, the exchange was a non-profit organization.
NYSE Chicago – NYSE Chicago, formerly known as the Chicago Stock Exchange (CHX), is a stock exchange in Chicago, Illinois, US. The exchange is a national securities exchange and self-regulatory organization, which operates under the oversight of the U.S. Securities and Exchange Commission.
International Securities Exchange (ISE) – includes ISE Options Exchange and the ISE Stock Exchange. International Securities Exchange Holdings, Inc. is a wholly-owned subsidiary of American multinational financial services corporation NASDAQ, Inc. It is a member of the Options Clearing Corporation and the Options Industry Council.
Miami Stock Exchange (MS4X) – The Miami Stock Exchange (MS4X) is a regional exchange that offers stock, currency, and futures trading from its location in Miami, Florida. The MS4X is a hub of trading services for the G27, which refers to the 27 Latin American and Caribbean Exchanges.
National Stock Exchange (NSX) – The National Stock Exchange (NSX) is an electronic stock exchange based in Jersey City, New Jersey. It was founded in March 1885 in Cincinnati, Ohio, as the Cincinnati Stock Exchange. In 1995, it moved headquarters to Chicago, Illinois, and was renamed the National Stock Exchange in 2003.
Nasdaq PHLX (PHLX) – Philadelphia Stock Exchange, now known as NASDAQ OMX PHLX, is the oldest stock exchange in the United States. It is now owned by NASDAQ Inc. Founded in 1790, the exchange was originally named the Board of Brokers of Philadelphia, also referred to as the Philadelphia Board of Brokers.
Learn How To Invest In US Stock Markets Helpful for Beginners:
How to Start Investing in NASDAQ / NYSE:
You need a Social Security number and other personally identifying information to purchase stock in US markets. There are age restrictions also which will be written on the website of the stock exchange. Once you are eligible as per the required documents and age you will need to open an online brokerage account.
Once your account is opened you can download your broker’s app and start investing.
What kind of returns you can expect?
Before I answer please note this very important advice: Do not invest money in stocks that you may need in the next 3-4 years. Stock market investing is risky, so you should invest money that you do not need urgently.
$10,000 invested in the S&P 500 index 50 years ago would be worth nearly $1.2 million today (as of Feb 2022). But how many accomplish this? You can, but you need patience. If you invest today and expect great returns within 2-3 days, that will not happen.
Stock investing, when done well, is one of the most effective ways to build long-term wealth. Read this post to know even 2% a month is a great return over the long term.
I Do Want To Open a Brokerage Account – Can I Still Invest in Stocks?
Yes, not directly but indirectly via Mutual Funds.
Mutual Funds are a pool of funds (money) taken by interested investors to invest in stock and bonds of various companies. In a mutual fund, you do not directly invest in stocks – it is done by the mutual fund manager on your behalf. So if you are too busy you can start investing in mutual funds. You can invest a fixed amount of dollars every month in a good mutual fund and redeem it when you need the money. Please do not redeem for at least 2 years because to make a good return even a mutual fund needs time.
Investing in a mutual fund is a great way to invest in stocks as educated financial analysts invest your money in stock markets. They are more likely to be better than you in the selection of stocks and timing of investing and booking profits in stocks.
I already invest in Mutual Funds, now I want to invest in US Stocks – How to invest?
Above I have already written some criteria to open an online brokerage account to start investing in US Stocks. Once your account is opened you can start investing in stocks.
How to Choose Stocks to Invest in?
Well, many financial advisors in the US can help you choose stocks to invest in, but they charge a fee you may not be comfortable with. However, if you are ok with their charges you can take their advice. I would still suggest that you start reading about the fundamentals of companies yourself before you invest in a stock.
What Is Fundamental Analysis?
Every business or company maintain their financial portfolio for investors. Good thing is that this financial portfolio is open to the public and investors to see and take a decision. This financial data is necessary to determine the stability and health of the company. A company with strong fundamentals will surely give better returns in the long term than a company with weak fundamentals.
If you study fundamental analysis deeply you will be able to estimate approximately what kinds of returns that stock will give in 2 / 3 years. Well, this is not guaranteed but if you are good at fundamental analysis then it’s obvious that you will not go wrong 100% of the time. Fund managers also get investments right 60-70% of the time. When wrong they exit from the stock at a predetermined stop-loss limit. You will have to also follow their path to become a successful investor.
Patience is the Key:
Even if you become very good at fundamental analysis you will need a lot of patience to ensure you do not enter and exit a stock in a few minutes (day trading), or just a few days (swing trading). Investment for the long term does take time but it has proven itself to be much better than day trading or swing trading.
Fundamental analysis will also help you to know the fair value of the stock. Try to find stocks that have strong fundamentals but are trading at far below their actual value. Easier said than done, but with time and practice, you should be able to achieve this.
Tip for Short-Term Investors:
If you are investing for the short term you can invest in companies whose quarterly results are far better than market estimates. Many financial websites and even business channels do write what most financial experts assume about the quarterly result of a company. Read what they are saying. Once the results are out and if the company has performed better than the expectations of the market you can invest in that company for the short term. The company’s stock will likely move upward over the next few days. Once you make a 2-3% profit just exit the stock.
However, if the stock does not perform as per your expectation you can exit with the same 2-3% loss. In this strategy, if you are correct 70% of the time you will make a good return.
Key Takeaways:
- You can open an online trading account sitting in your home and start investing.
- Make sure you have the option to invest in stocks listed on Nasdaq as it has the world’s best infrastructure.
- There are many other small stock exchanges in the US, but you can ignore them.
- Invest the money that you own and not take as a loan and also the money that you do not need for the next 3-4 years or more.
- Invest in good fundamentally strong companies – means those whose finances are strong, they are not too much in debt, their capital flow and sales are strong and getting stronger every year.
- Try to find fundamentally strong companies whose stock prices are trading at lower valuations than they should be. It’s easier said than done but if you cannot figure it out then just invest via the SIP mode in 4-5 fundamentally strong companies.
- Lastly, be patient with your investments. Some stocks will go down after you invest but do not panic and exit. With time and averaging out the stocks, you will get decent returns. Remember people who sit tight with their investments get better returns than the ones who enter and exit often. Day traders are the worst.
Similar Read:
Can non-US citizens buy stocks of US companies – Mutual fund section is important.
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