Staten Island, NY Financial Planner / Portelles Wealth Management Group
Generally, stocks are traded in blocks
or multiples of 100 shares, which are called round lots. An amount of
stock consisting of fewer than 100 shares is said to be an odd lot.
On an exchange, an order that involves both a round lot and an odd
lot-say 175 shares-will be treated as two different trades and may be
executed at different prices.
Your broker will charge you a different commission on each trade,
and will confirm each of them separately.
These distinctions do not generally apply to trades executed in
the OTC market.
What are the differences between
over-the-counter trades and stock-exchange trades?
To be traded on an exchange such as the New York Stock Exchange or
the American Stock Exchange, the issuing company must meet the
exchange's listing standards; these may include requirements on the
company's assets, number of shares publicly held, and number of
stockholders. Organized markets for other instruments, including
standardized options, impose similar restrictions.
Many securities are not traded on an exchange but are said to be
traded over the counter (OTC) through a large network of securities
brokers and dealers. In the National Association of Securities
Dealers' Automated Quotation System (NASDAQ), operated by the
National Association of Securities Dealers (NASD), trading in OTC
stocks is accomplished through on-line computer listings of bid and
asked prices and completed transactions.
Like the exchanges, NASDAQ has certain listing standards which
must be met for securities to be traded in that market.
Investors who buy or sell securities on an exchange or over the
counter usually will do so with the aid of a broker-dealer firm. The
registered representative is the link between the investor and the
traders and dealers who actually buy and sell securities on the floor
of the exchange or elsewhere.
Market prices for stocks traded over the counter and for those
traded on exchanges are established in somewhat different ways. The
exchanges centralize trading in each security at one location-the
floor of the exchange. There, auction principles of trading establish
the market price of a security according to the current buying and
selling interests. If such interests do not balance, designated floor
members known as specialists are expected to step in to buy or sell
for their own account, to a reasonable degree, as necessary to
maintain an orderly market.
In the OTC market, brokers acting on behalf of their customers
(the investors) contact a brokerage firm which holds itself out as a
market-maker in the specific security, and negotiate the most
favorable purchase or sale price. Commissions received by brokers are
then added to the purchase price or deducted from the sale price to
arrive at the net price to the customer.
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