Financial Literacy For Kids: Explaining the Exchanges

Explain the Exchanges to Your Child

While some of our mini money mavens might have the basics of investing down, do they have any idea how stocks are bought and sold? By helping kids understand that stocks (and other securities) are traded on an exchange, and giving them insight into the most popular trading marketplaces, kids can get a grip on investing basics.

What is an exchange?

An exchange is a fair and orderly marketplace where securities like stocks, commodities, futures and options are publicly traded by investors. Three of the most popular stock exchanges in the United States are the NYSE, Nasdaq and AMEX. (While an exchange in general includes commodities, the three we cover are specifically stock exchanges.)

The 3 Most Popular Sock Exchanges:

• NYSE - The New York Stock Exchange, located on Wall Street in New York City, is the largest stock exchange in the world. The NYSE is home to some of the oldest and most established U.S. companies. Many celebrities and public figures have rung the opening or closing bell of the NYSE…former president Ronald Reagan, Hollywood actor Sylvester Stallone and even Spiderman have all done the honors. Stocks like Walmart, Under Armor and Exxon Mobil are listed on the NYSE.

• Nasdaq - The Nasdaq, or “National Association of Securities Dealers Automated Quotations,” is a world-wide electronic marketplace for buying and selling securities. As the first electronic exchange on the globe, the Nasdaq is home to 25 markets, a clearinghouse, and five central securities depositories in both the U.S. and Europe. Many of the largest technology companies are traded on the Nasdaq. Stocks like Apple, Google and Tesla are listed on the Nasdaq.

• AMEX - The American Stock Exchange was once the third largest stock exchange in the United States and accounted for 10% of all securities trades at its peak. Today, the AMEX is known as the NYSE American and mostly trades small cap stocks.

How is it decided which exchange a public company is listed on?

Generally speaking, companies listed on the NYSE are more established and stable, and companies listed on the Nasdaq are typically known for technology and innovation (but also considered more volatile and growth-oriented).

What’s more, individuals aren’t going directly to one of these exchanges to buy or sell stocks. Instead, exchanges are a place where institutional investors buy and sell shares. Individual investors typically trade through brokerage accounts (i.e. Fidelity, Ameritrade or even Robinhood) to make their stock transactions.

If kids are familiar with the most popular exchanges, they can more easily decipher financial headlines as they build their financial fitness. By helping kids understand that exchanges allow investors to buy and sell stocks, bonds, commodities, options and futures in a secure, fair marketplace, growing investors will know where to go when they want to buy low, sell high 😉.

Interested in investing? Check out our investment guides!

Do you know what exchange your favorite stock trades on? Let’s look it up.