Saturday, May 16, 2009

trading places : Auction and over-the-counter markets

Secondary financial markets also can be categorized according to how assets are traded between buyers and sellers.The first is auction markets,in which prices are set by competitive bidding by a large number of traders acting on behalf of individual buyers or sellers. The most common auction markets are exchanges,or central locations at which buyers and sellers trade. These include the New York and American Stock Exchanges, the Tokyo Stock Exchange,the London stock Exchange,and others.
Secondary markets also can be organized as over-the-counter(OTC)markets,in which there is no centralized place for auction trading.Over-the-counter dealers buy and sell stocks and bonds through computerized trading to anyone willing to accept their posted prices.Close electronic contact keeps the over-the-counter market competitive.You are unlikely to pay a much higher price for a share of stock in Newco at one dealer than at another.
The equities of the largest corporations are traded on exchanges,as are the bonds of the most well-known corporations. The shares of smaller,less well-known firms are generally traded in over-the-counter markets,as are U.S.government bonds.The market for these bonds has the largest trading volume of any debt or equity market.Other major OTC markets include those for foreign exchange,federal funds,and negotiable certificates of deposit.

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