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In the southern part of Manhattan Island there is “Wall Street,” so named because early in the history of the city there was a wall there (it marked the southern boundary of New York for a short time).
New York City started out as a settlement in what is now lower central Manhattan . In the late nineteenth century the five present “boroughs” of New York City ( Manhattan , Queens , Brooklyn , the Bronx and Richmond ) united into a single city. They had each started out as separate settlements. The important thing about Wall Street is that the New York Stock Exchange is on that street—and has been for a couple centuries—the market started there. Hence we have the expression Wall Street to refer, not just to the New York Exchange (“NYSE”) but as a catch-all word for all American stock exchanges. In non-English countries the English word for a stock exchange is bourse. Hence you have the “London Exchange” but the “Paris Bourse.” Market is a general word for a place where people buy and sell things. Hence, a stock market is a place where people buy and sell stock—also known as securities. What these are is pieces of ownership of corporations—business organized via incorporation. American corporations are identified by the abbreviation “inc.” (read it incorporated) or the word “corporation” in their name. In other countries one is more likely to see the abbreviation “ltd.” (read limited). It means the same thing—the fact that the owners of the business—the shareholders—have been granted a charter by the government which limits their personal liability for ownership to the amount they have invested. If a non-incorporated business fails, the owners can be held personally liable for unpaid debts. The government grant of incorporation enables the owners to limit the exposure of their personal assets to just the value of their holding. This is necessary if the corporation is to raise capital from the general public, but even many privately held companies (companies where the stock is not traded in organized exchanges) are incorporated. When someone thinks they would like to own some stock in a given company, they contact their broker (one must first open an account with such a business) and obtains a quote. This is the most recent price for one share of the company’s stock. News reports reporting on stocks typically quote the closing price—the price of the last trade in that stock the previous day. One can then place an order with the broker. There are several kinds of order, but the two most important are a market order and a limit order. In a market order you effectively say to the broker—“get me the best price you can, but I want to own that stock today regardless.” In a limit order, you say, “get me the best price you can, but not more than $xx per share—if the asking price never gets below that level, then my order should be allowed to expire unexercised. At the same time as you are trying to buy the stock, there are others who may already own the stock but wish to sell. It is the exchange’s task to get each’s broker together so that the seller and buyer meet. In the past this was done physically on the floor of the exchange, but nowadays it is more likely to be accomplished via computers. In fact the second largest exchange in America is entirely computerized (there is no physical floor)—the NASDAQ. Three final words for this essay (obviously more than one essay on this subject is going to be needed)—the bid, the ask, and the spread. The bid is the highest price anyone has offered to buy the stock for, the ask is the lowest price anyone has offered to sell the stock for, and the spread is the difference between the two. |
