The structure of the U.S. stock market outlines how equities are traded, who participates, and how the entire system is regulated. Here’s a concise breakdown:
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1. Key Stock Exchanges
These centralized platforms host the trading of publicly listed companies:
NYSE (New York Stock Exchange):
The largest stock exchange by market capitalization.
Combines traditional auction-based trading with electronic systems.
Known for listing blue-chip firms like Coca-Cola and JPMorgan.
NASDAQ:
A fully electronic exchange.
Dominated by technology-driven companies such as Apple, Microsoft, and Nvidia.
CBOE (Chicago Board Options Exchange):
Specializes in options and volatility-related financial products.
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2. Main Market Participants
Various players interact in the market:
Retail Investors:
Individual traders buying or selling through online or traditional brokers.
Institutional Investors:
Large entities like hedge funds, pension funds, and mutual funds managing significant capital.
Market Makers:
Firms that continuously provide buy and sell quotes to ensure liquidity (e.g., Citadel Securities).
Broker-Dealers:
Act as intermediaries between investors and the market (e.g., Fidelity, Robinhood).
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3. Trading Venues
Where trades are executed:
Traditional Exchanges:
Platforms like NYSE and NASDAQ where most listings and trades occur.
Dark Pools:
Private trading networks used primarily by institutions, offering anonymity and minimal market impact.
ECNs (Electronic Communication Networks):
Match buy and sell orders automatically without intermediaries (e.g., ARCA, BATS).
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4. Regulatory Framework
Oversight and enforcement are provided by:
SEC (Securities and Exchange Commission):
The primary regulator of U.S. securities markets, ensuring transparency and protecting investors.
FINRA (Financial Industry Regulatory Authority):
Regulates broker-dealers and enforces compliance among trading firms.
Federal Reserve & U.S. Treasury:
Indirectly affect markets through interest rate policies and fiscal decisions.
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5. Common Order Types
Different methods investors use to execute trades:
Market Order:
Executes instantly at the best available price.
Limit Order:
Only executes at a specified price or better.
Stop Order:
Converts into a market order once a set price threshold is reached.
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6. Trading Hours
The market operates in sessions:
Regular Trading: 9:30 AM – 4:00 PM EST (Monday to Friday)
Pre-market Trading: 4:00 AM – 9:30 AM EST
After-hours Trading: 4:00 PM – 8:00 PM EST
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