Fun fact: the New York Stock Exchange’s nickname is The Big Board. (It was also the nickname of the principal's favorite educational tool in the '50s, but we digress.) We guess it’s not bad, as far as nicknames go. We’ve definitely heard worse. Anyway, when trades aren’t conducted on major exchanges like the NYSE, they get a sweet little nickname of their own: “off board” transactions. Get it? Because they aren’t on the Big Board? Man, where do they come up with this stuff, right?
So why would trades happen this way? There are two reasons. The first would be if they are OTC transactions, because those don’t happen on major exchanges anyway. The second reason might be because an investor or institution wants to trade a large amount of a listed stock without impacting general consumer confidence in said stock.
For example, let’s say Banks N Stuff, Inc., a big financial institution, wants to sell 25,000 shares of a certain stock to Fun Funds, an investment firm. A big sell-off like that can have a big impact on investor confidence in the stock, so companies sometimes opt not to conduct big trades like that on a large exchange. They’d rather do it off board, so they don’t unnecessarily or unintentionally impact the value of the stock.
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Finance: What are the NASDAQ and NYSE?74 Views
Finance a la Shmoop. What are the NASDAQ and the NYSE? Nasdaq, yeah it stands for
National Association of Securities Dealers Automated Quotation-systems. And [NASDAQ defined]
yeah, it feels like they got cheated out of an S in there somewhere, like NASDAQ'S.
That's what happens when life's on a budget. So NASDAQ is an electronic
version of the original wall, as in Street, Wall Street, yah that. Where
well-dressed folks would come with cash in hand scream out a stock and a price [stock market in 1900s]
and then trade shares. They would trade for whatever was trending at the time. Like
eyeball massagers, or wooden swimsuits, or motorised surfboards, all real things
by the way. NASDAQ is the much more modern version of its predecessor NYSE.
Is anything but nice when you lose money there. NYSE stands for New York
Stock Exchange and it too was an outgrowth of the well-dressed folks at
the wall. There are two key structural differences in the two trading systems,
the NYSE is an actual physical place, has a physical location, address, etc. and this [NYSE Building]
is what it looks like. NASDAQ is really a concept, a religion, a
network, it's not really a place. At least not a geographic place. The other big
difference is the manner in which shares are traded. The NYSE is an auction-based
system, one individual is a buyer of AMZN at $983.25, he screams electronically
that number and then buys from whoever is willing to sell at that price.
Individuals buy from individuals. That's an auction market. But NASDAQ is a
dealer market, that is somebody deals in the stock. They go out into the market[online stock market]
and buy say a million shares of whatever.com that was bought in the market
conveniently for exactly ten bucks even. That dealer now makes a market in that
stock, ie the dealer is kind of you know, their own individual market. And she
moves with the market to manage the spread in the trades. Like she might have
a narrow spread, where she's a buyer of the stock at $10.02 and a seller of the
stock at $10.07 a share. Or it's a really wild volatile stock, on a wild and [man and woman on rollercoaster]
volatile day, she might be a buyer only at $9.90 and a seller at $10.30, making 40
cents a share trade. Well you could do the fancy math that if she
keeps her inventory steady at a million shares and trades a million shares that
day. Well with that spread she makes 40 cents times a million or 400 grand for
the day's efforts. However after staring at a screen all day she's gonna have to
spend at least some of that money on eye care. [woman in office]
Thank goodness for those eyeball massagers.
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Over the counter refers to a trade transacted within a network of other dealers who are all trading stocks.