Page 189 - Initial Public Offering - An Introduction to IPO on Wall Street

selling a stock, the countless transactions that occur trigger minute-by-minute wild swings in
it during a trading day.

A stock exchange offers a forum where the matching buyers and sellers of stocks can
conveniently perform such trading. A stockbroker is needed by the common man to access
these exchanges. This stockbroker functions between the buyer and the seller as the
intermediary. Generally, a stockbroker is gotten on board by establishing an account with a
renowned retail broker.

Types of Stock Exchanges

The stock exchange can be categorized into the following three types.

Auction Exchange

As the name suggests, an auction exchange is where shares are bought and sold in an auction-
style. A key term to know when trading on an auction exchange is the current price. The
current price points to the highest price that a buyer is willing to pay for the stock.

On the other hand, the lowest price is a term used for the minimum price the seller is willing
to sell the share at. As soon as the prices match, a trade occurs. The NYSE is one such
example where investors engage on the physical trading floor.

Electronic Exchange

Electronic exchanges have substituted auction exchanges almost completely. Such exchanges
enable investors to remotely perform trading activities. Moreover, they are faster than auction
exchanges. The most well-known electronic exchange in the world is the NASDAQ.

Electronic Communication Networks (ECNs)

It's a component of the alternative systems of trading. ECN directly connects purchasers and
sellers and greatly reduce the cost of transactions. ECNs are mainly used by institutional
investors.

Although a large proportion of stocks are exchanged on exchanges, some stocks are bought
and sold over-the-counter (OTC), where stock buyers and sellers typically trade through a
broker or "market maker" who directly deals with the stock. OTC stocks are stocks that do
not fulfill the minimum price or other exchange listing criteria.

Therefore, upcoming IPOs can be listed and tracked on the different types of stock exchanges
and the over-the-counter (OTC) markets.

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