Aim: How are stocks and bonds sold to the public?

Securities Markets  The New York Stock Exchange (NYSE)- Created in 1792 in order to repay Revolutionary War Debt. Over 2,800 companies currently have shares traded at the NYSE.  The American Stock Exchange (AMEX)- Was merged into the NYSE in  The National Association of Securities Dealers Automated Quotation System (NASDAQ)- Established in 1971 trades stocks and bonds for companies who are not listed with the NYSE. All orders are completed electronically.

How do Investors Purchase?  Those wanting to purchase stocks and bonds usually go through a Brokerage Firm and the firm receives a Commission or fee for their work.  Buying and selling stocks and bonds follow the laws of Supply and Demand.  If the demand for a stock goes up the price will rise, if the demand goes down the price will go down.  Nearly half of all households in America invest in stocks and bonds either directly or indirectly through insurance polices and retirement pension plans.

Reasons for Investing  Dividends: Each Corporations may elect to distribute part of the company’s profits to its shareholders  Capital Growth: The value of stock is not fixed at a set amount. Therefore, with changes in supply and demand the price can fluctuate. People expect the stock price to raise above what they paid for it.

What is Speculation?  Some investors look to turn a quick profit by trying to predict price fluctuations in the market.  For example with gas prices. Speculators can almost control the market by predicting if the price of crude oil will go up and down based on political situations and seasonal changes.  Buying Long: Purchasing stocks and bonds with the expectation of selling them at a high price. This is known as a “Bull Market”  Selling Short: Investors speculate that stocks will fall in price. This is known as a “Bear Market”. Speculators borrow stock for a fee from a brokerage firm and attempt to profit off the transaction. If correct, the speculators and the brokerage firm will profit greatly. If incorrect the speculator can lose thousands.

How are Investors Protected?  The Securities and Exchange Commission (SEC) was created in 1934 to protect against deception and fraud.  The main way the SEC protects the public is by apply the principle of Caveat Emptor- “Let the Buyer Beware”  All investing firms and corporations must publish financial information and failing to do so or created false or misleading statements is punishable by fine, imprisonment, or both.  The SEC has made “Insider Trading” illegal. Company insiders cannot use privileged information to buy and sell stock before the information is made public.