Stocks & Shares - Preferred Stock

Type Of Securities  - Preferred Stock

Preferred stock is similar to the common stock, usually without voting rights, who offers a limited risk but limited profit to the shareholder. It represents some degree of ownership in a company but typically doesn't come with the same voting rights. With preferred stock investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are affected by the market and never guaranteed. 

Due to this nature of the preferred stock, some people consider preferred stock to be more like debt than equity. When you buy a preferred stock, you know in advance what is the amount of the dividend you will get, and the company pay dividend to you before thay pay to the common shareholders. On the other hand, the amount of dividend you get is the same even if the company had much larger profit that year. 

Another benefit of investing into preferred stock is that in the event of liquidation preferred shareholders are paid off before the common shareholder. This means that when the company must liquidates and pays all the creditors, common stockholders will not receive any money until after the preferred shareholders are paid out. 

Preferred stock may also be callable, meaning that the company has the option to buy back the shares from shareholders at anytime for any reason. Investing into this type of stock gives investor a greater claim to a company's assets and earnings. 

Also, prices of preferred stocks tend to have lower volatility od common stocks and that means a lower overall risk.

Seats On The New York Stock Exchange

What Is The Seat On The New York Stock Exchange?

A seat on the New York Stock Exchange represent both an equity interest in the Exchange as well as the right to access the trading facilities of the market.

A Membership on the NYSE is traditionally referred to as a 'seat' because in the early year of its existence, Members sat in assigned chairs in the hall where the Exchange’s daily roll call of stocks was conducted.

After a post-Civil War boom in stock trading, the Exchange adopted a system of continuous trading, replacing calls of stocks at set times with simultaneous trading of all listed stocks on a large open trading floor.

The term 'seat' lost its literal meaning with the advent of continuous trading in 1871. Trading was then conducted at trading posts on a large open floor. The seats that the brokers had occupied were gone. Owning or leasing a seat on the Exchange enabled qualified and licensed professionals to buy and sell securities on the floor.

In 1868 the Exchange established a fixed number of Memberships and revised its rules to allow Members to sell their seats. After selling for as little as $4,000 in the late 1860s and early 1870s, Memberships reached $80,000 by the turn of the century, reaching a high of $625,000 during the bull market of 1929 before reaching new highs of over $1 million during the 1980s stock market boom.

In 1990, a seat sold for $250,000. The highest price ever paid for a seat was $4 million on Dec. 1, 2005, followed by several seat sales at the same price.

Since the late 1970s, NYSE Members have been permitted to lease seats and their assigned trading rights to qualified individuals. 

New York Stock Exchange In Modern Times:

At the close of the market on December 30, 2005, member seat sales on the New York Stock Exchange officially ended, in anticipation of the NYSE’s plans to become a publicly traded company by way of merger with Archipelago Holdings Inc.

In 2005, NYSE seat prices have reached an historic high, quadrupling from a low of $975,000 on Jan. 11 to reach a new all-time high of $4 million in early December.That is an increase of 310%! The most recent seat sale, on Dec. 29, was for $3,505,000.

On Wednesday, Jan. 4, 2006, the NYSE conducted a Dutch auction for trading licenses. This gave Members and Member organizations the right to access the trading facilities of the NYSE market.

Until 2006, members could only join by purchasing existing seats, which were limited to a total of 1,366. In April 2006, the NYSE went both electronic and public, by merging with the already publicly traded Archipelago electronic stock exchange. The new merged company is called the NYSE Group, Inc., and the seats of the NYSE translated into shares of stock. 

Now let's go to the London Stock Exchange or LSE, better know as the City of London!

History Of The New York Stock Exchange: 1792-2011

As you can see, the New York Stock Exchange was formed in 1792! To put things in the perspective, while in Europe were Napoleonic wars, in New York city a group of 24 out of 64 traders made an agreement on 17th May 1792 and formed New York Stock & Exchange Board. The agreement was signed under a buttonwood tree. In 1863 the name of the exchange was shortened to "New York Stock Exchange" - the name it still holds today.

As the 20th century dawned, the NYSE was firmly established as one of America’s preeminent financial institutions. Trading in listed stocks had tripled between 1896 and 1899 and would nearly double again by 1901.

More space was clearly needed, the market was expanding. So the Exchange invited eight of New York City’s leading architects to join in a competition to design a grand new building.

The Exchange chose the neoclassic design of architect George B. Post. Today, the Exchange building is considered one of Post’s masterpieces and is a New York City and American national landmark.

Of course, one of the most important events in the New York Stock Exchange history happened in 1929 when the 'Great Depression' and stock market crash occurred. It is a subject about which I have done quite a lot of reading and find fascinating.

 

The Great Depression And The New York Stock Exchange:

Stock prices fell sharply on October 24 1929, Black Thursday, with record volume of nearly 13 million shares. Five days later, the market crashes on volume of over 16 million shares which is a level not to be surpassed for 39 years. On September 3 1929, the Dow Jones Industrial Average reaches its 1929 peak of 381.17.

On October 29, Black Tuesday, prices fall sharply and the stock market crashes. This crash produces a record volume of nearly 16 million shares. The Dow Jones Industrial Average falls more than 11 percent.

Other important facts about members and member firms throughout NYSE history:
-Highest price paid for a membership: $4,000,000 on December 01, 2005
-Lowest price paid for a membership: $2,750 in 1871
-First member firm to incorporate: Woodcock, Hess & Co., Inc., 1953
-First member firm to go public: Donaldson, Lufkin & Jenrette, 1970
-First member firm to be listed on the NYSE: Merrill Lynch, 1971

Until 2006, members could only join by purchasing existing seats, which were limited to a total of 1,366. In April 2006, the NYSE went both electronic and public, by merging with the already publicly traded Archipelago electronic stock exchange. The new merged company is called the NYSE Group, Inc., and the seats of the NYSE translated into shares of stock.

Now let's go and see how the NYSE seat system worked in the Seats On The New York Stock Exchange.

What Is The New York Stock Exchange (NYSE), Better Known As "Wall Street"?

The New York Stock Exchange or NYSE is a physical exchange, located at Wall Street, also knows as referred as a listed exchange – where only stocks that can be traded are one that are listed on the exchange.

NYSE is the world's largest equity market. On an average trading day there are 1.46 billion shares traded that worth around 46 billion US dollars.

NYSE listed companies are one of the world’s biggest and best. They range from 'blue-chip' companies that have been trading for decades, to young high-growth ones. At the time of the writing there are around 2800 listed companies.

The NYSE has a status called 'members'. A member firm is a company or individual who owns or leases a "seat". Only these member firms are allowed to buy and sell securities on the trading floor. The member firms must must meet rigorous professional standards set by the Exchange.

The number of seats is 1366 since 1953. Since 1868 it has been possible for members to sell or lease their seats after a change in the rules of the exchange.

Customers orders are sent by brokers to the floor brokers, who are members of the exchange. Then, floor brokers send the order to the specialist’s trading post where order is finally get executed.

Specialist who is also known as a market maker, as the name imply, specialize in one security only and his job is to make a market for it. So the specialist's job is to match buy and sell orders using open outcry. If there is a spread between bid and offered price and the trade can’t be executed in that moment, the specialist comes in with his own money or stock to close the difference. In other words – to make the market.

When trade is executed, details are reported on the tape and sent back to the brokerage house, who then notifies the customer that his trade was executed and at what price. That's the report that You and I get when we buy or sell a stock.

Now let's go to the history of New York Stock Exhange in the History Of The New York Stock Exchange.

What Is A Stock Market Or A Stock Exchange

A stock or equity market is first of all a place where buyers meet sellers to exchange their goods, in this case - stocks, also known as securities for the money. In modern times, those places where trading is done and where securities are listed are actually a companies, just like the ones that are traded on the exchanges. The whole world stock market was estimated to be around 36 trillion US dollars based on the data from 2008.

The stock market or stock exchange, as we said, is a place where stocks are listed and traded. In former days, those stocks were just a pieces of paper that represented a part of the ownership in company. Today, those pieces of paper, also known as stock certificates, are in electronic form and can be issued in paper form only on the request.

The largest stock exchange in the world, by market capitalization based by stocks listed on them, is New York Stock Exchange better known as NYSE. Other exchanges in the United States are American Stock Exchange or AMEX and NASDAQ. 

Other important stock exchanges are in England where is the London Stock Exchange is located. In Asia we have Tokyo Stock Exchange, in Canada there is the Toronto Stock Exchange, in Paris the Paris Bourse, in Germany the Deutsche Borse (former Frankfurt Stock Exchange).


Importance Of Stock Exchanges: 

The stock market is one of the most important ways for companies to raise money to expand and grow their businesses. This allows businesses to be publicly traded and to raise additional capital for expansion by selling shares to the general public. Liquidity that exchanges provide give an investors a possibility to quickly buy and sell securities and with less risk. 

It’s wide known that if the stock market is on the rise it is considered that economy is up and booming. That’s the reason why is it considered stocks market to be a leading indicator of a country's economic strength and development.

Rising share prices, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. For that reason, Central banks, which I’al cover in the future posts, keep an eye to the stock market prices and if prices rise to much as in ’90s, it can lead to the stock market crash.

Stock exchanges are also the clearinghouses for each transaction, which means that they collect and deliver the shares and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty cannot make the payment.
 

Let's go now to the New York Stock Exchange Or NYSE...

Welcome To My Stock Market & Forex Blog!

Who Am I And What Is This Blog About?

Hi, my name is Dusan Kovacevic and welcome to my blog! I became interested in the markets since 2004, and since then I'we been trading in stocks, forex, CFDs and spread-betting. Also, I have a BA degree in Finance and worked as a junior broker, so I think I have  a solid understanding about financial markets. My intention with this blog is to help people with little or no formal education about financial markets to learn how global financial system works, what is the difference between investing and trading and how to use both to achieve your financial goals.

Here is a list of the main subjects, that in my opinion, are really important to understand before we can move to real trading stuff. Here is the list:

- What is stock market?

- What stock exchanges exist today and how they work?

- Macroeconomic and why is it important to understand?

- Cycles, recession and prosperity.

- Meaning of inflation and deflation.

- What are interest rates

- What is yield curve

- Feds and Fed's chairmen

- Indexes and averages and what are they telling me?

- Types of trading instruments

- Type of stocks

- Bonds, what are they and are they really alternative to stocks?

- Derivatives, what they are and differences and similarities between them

- Options, calls, puts and the greeks

- Futures, forwards warrants and swaps

- Mutual funds and the differences between them

- ETFs and why are they important for investors to achieve their goals?

- Hedge funds

- Trading vs. Investing? What's better?

- Trading strategies

- Investing strategies

- News. Are they important or not, and how to know when are news already priced into the price of   underlying instrument.

- Fundamental and technical analysis.

So let's start with definition of what the is a Stock Market...