A:

An auction market is one in which stock buyers enter competitive bids and stock sellers enter competitive offers at the same time. If this sounds like buying and selling stock on a stock exchange, you're right. It is worth noting that before stocks are traded on a stock exchange, which is referred to as the secondary market, they are created by means of an initial public offering (IPO). The secondary market is essentially an auction market and is what people are referring to when they talk about the stock market.

Virtually all stocks are traded on stock exchanges. Some exchanges are physical locations (for example, the New York Stock Exchange - NYSE) where transactions are carried out on a trading floor. The other type of exchange is virtual (National Association of Securities Dealers Automated Quotations - Nasdaq), comprised of a network of computers where trades are made electronically.

To learn more about exchanges, see Getting to Know Stock Exchanges, The Tale Of Two Exchanges: NYSE And Nasdaq and The Global Electronic Stock Market.

RELATED FAQS
  1. What kind of assets can be traded on a secondary market?

    Learn about the difference between the primary market and the secondary market, and what types of assets are traded on secondary ... Read Answer >>
  2. Why are traders on the floor of the exchange?

    Before the advent of electronic trading platforms, the floor of the stock exchange was the location for market transactions ... Read Answer >>
  3. What exactly is being done when shares are bought and sold?

    Most stocks are traded on physical or virtual exchanges. The New York Stock Exchange (NYSE), for example, is a physical exchange ... Read Answer >>
  4. How do I invest in the Nasdaq or the NYSE? Is it even possible? Would I want to? ...

    The Nasdaq and the NYSE are stock exchanges that trade securities. Nasdaq stands for National Association of Securities Dealers ... Read Answer >>
  5. What are all of the securities markets in the U.S.A?

    There are three major U.S. financial securities markets which are: New York Stock Exchange (NYSE): NYSE is a stock exchange ... Read Answer >>
Related Articles
  1. Insights

    The NYSE and Nasdaq: How They Work

    Learn some of the important differences in the way these exchanges operate and the securities that trade on them.
  2. Investing

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  3. Investing

    Explaining Dutch Auction

    A Dutch auction is a public offering auction.
  4. Insights

    Getting to Know the Stock Exchanges

    Here are the answers to all the questions you have about stock exchanges but are too afraid to ask.
  5. Insights

    What's an Exchange?

    An exchange is an organized marketplace where securities and other financial instruments are traded.
  6. Investing

    Stock Exchanges Around The World

    We tell you about five of the most popular stock exchanges from around the globe.
  7. Personal Finance

    Auction Rate Securities: Bidding On The Long Run

    These investments do better with a long-term horizon. Should you buy them before they're going, going, gone?
  8. Investing

    Stock Exchanges: A Global Tour

    Check out the history and inner workings of the world's six most well-known stock exchanges.
  9. Investing

    Who Owns The Stock Exchanges?

    As M&A heats up among the exchanges, here's how the market currently looks.
RELATED TERMS
  1. Equity Market

    The market in which shares are issued and traded, either through ...
  2. Auction Market

    A market in which buyers enter competitive bids and sellers enter ...
  3. Reverse Auction

    A type of auction in which sellers bid for the prices at which ...
  4. Auction

    A system where potential buyers place competitive bids on assets ...
  5. Stock Market

    Exchanges or over-the-counter markets in which shares of publicly ...
  6. Dutch Auction

    1. A public offering auction structure in which the price of ...
Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  3. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
  5. Impaired Asset

    A company's asset that is worth less on the market than the value listed on the company's balance sheet. This will result ...
  6. Solvency Ratio

    One of many ratios used to measure a company's ability to meet long-term obligations. The solvency ratio measures the size ...
Trading Center