Deane 1
Emily Deane
Wendy York
BUSN 1320
Stocks and Bonds
A company’s first offering of stock to the public is called an Initial Public Offering (IPO).
Companies can make the decision to offer an IPO for several reasons, and can issue additional
stock at any time. Stocks are offered in the primary market initially, usually for the purpose of
raising money to expand the business. This can be used for things such as building new factories
or hiring new employees. Once investors have purchased stock from an IPO, they can then sell
the stock in the secondary market so that the stock can be bought and sold much more efficiently.
The New York Stock Exchange (NYSE) and the Nasdaq are the main secondary markets in
America.
While the Nasdaq and The New York Stock Exchange are the two main secondary mar-
kets in America, the two operate quite differently. All trades on the NYSE occur on the trading
floor in New York City in a physical state, with people matching buy and sell orders for in-
vestors. The Nasdaq, however, is not in a physical location but on a telecommunications net–
work. Investors can trade directly with buyers and sellers electronically rather than having a rep–
resentative in New York City do it for them. The biggest difference between the two is that the
Nasdaq is what is called a dealer’s market, where the buyers and sellers are doing business
through a dealer, and the NYSE is called an auction market, where buyers and sellers are bidding
on stocks amongst each other directly. Each market has their own “traffic controller.” The Nas-
daq has what is called the market maker, and NYSE has a specialist. Both ensure that the markets
run smoothly, and help match bidders and sellers so that the market runs efficiently and quickly.
Deane 2
There are two basic categories of stock, common and preferred. Common stock is simply
ownership in part of a company. This means that if you own common stock in a company, you
are entitled to part of the profits as well as any voting rights associated with owning the stock. It
is the most common form of stock owned, hence being referred to as “common” stock. As an in-
vestor you have one vote per share you own to elect board members for the company. Common
stock also comes with the most risk, because if the company were to go bankrupt the investors
would be the last to receive any money for their stocks. No investment will provide better re-
turns, however. Usually stocks are purchased using a brokerage, which typically require the in–
vestor to have at least $500 to open an account. All in all common stock is very easy to buy and
sell, and there is a large number of companies to choose from. However, the is a certain aspect of
risk in investing in common stock as your money is only as good as the company you invest it in,
