Stock Averages and Brokers

Every day on the news you hear about the Dow Jones Industrial Average, and other averages like the S&P 500 or The Russell 2000. These are broad market averages designed to tell you how companies traded on the stock market are doing in general. For example, the Dow Jones Industrial Average is simply the average value of 30 large, industrial stocks. Big companies like General Motors, Goodyear, IBM and Exxon are the companies that make up this index. The S&P 500 is the average value of 500 large companies. The Russel 2000 index averages the values of 2,000 smaller companies.

Wall Street's bronze bull, by Arturo De Modica, located at the northern tip of Bowling Green

What these averages tell you is the general health of stock prices as a whole. If the economy is "doing well," then the prices of stocks as a group tend to rise in what is referred to as a "bull market." If it is "doing poorly," prices as a group tend to fall in what is called a "bear market." The averages reveal these tendencies in the market as a whole.

There are three big stock exchanges in the United States:

• NYSE - New York Stock Exchange
• AMEX - American Stock Exchange
• NASDAQ - National Association of Securities Dealers

A company "lists" its stock on an exchange. For example, the NYSE has about 3,000 companies listed. According to the NYSE:

At the end of November, 1998, there were 3,104 companies with stock listed on the NYSE. These companies had over 236 billion shares worth a total of $10.1 trillion available for trading on the Exchange, giving the NYSE the world's largest market capitalization (in global market-value terms, the total global value of the NYSE-listed companies exceeded $12.8 trillion).

Anyone who wants to buy or sell stock in any of these 3,000 or so companies goes to the New York Stock Exchange to do it.

Of course, no one wants to fly to New York to buy or sell their shares. A person therefore calls a stock broker in a firm that is authorized to trade at the exchange. There are dozens of such brokerage houses, including such familiar names as Merrill Lynch, Charles Schwab and Morgan Stanley. When you call up a broker at one of these companies, he or she relays your trade to the floor of the appropriate exchange, and a representative of the company (or, more commonly, a computer representing the company) makes the trade on your behalf. You pay the broker a commission (generally $10 to $100 per trade, depending on the broker) to provide this service to you. Today, you can also trade stock online -- see this page to learn more.

Stocks that are not listed on an exchange are sold Over The Counter (OTC). OTC stocks are generally in smaller, riskier companies. Usually, an OTC stock is stock in a company that does not meet the requirements of an exchange.

For lots more information on stock, the stock market and related topics, check out the links on the next page.