Eyeing The Exchanges

By Investopedia Staff | November 03, 2010 AAA

Whether you're a short-term trader or a regimented buy-and-hold investor, investing is essentially a combination of buy and sell orders and profit-making intentions. From this standpoint, good investment options may be U.S.-based exchanges, where buyers and sellers meet, invest, and pay transaction fees every step of the way.

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Who's the most famous?
The New York Stock Exchange, home of listings ranging from long-standing U.S.-based companies like Wal-Mart Stores, Inc (NYSE:WMT) and Ford Motor Company (NYSE:F) to new exchange-traded funds like the Global X Lithium ETF (NYSE:LIT) and seasoned international based ADRs like HSBC Holdings plc (NYSE:HBC), is one of the most well-known exchanges in the world. The New York Stock Exchange is under the NYSE Euronext holding company (NYSE:NYX), representing the combination of the NYSE Group and the Euronext N.V. (For related reading, see The Tale Of Two Exchanges: NYSE And Nasdaq.)

NYSE Euronext Q3
Cash trading makes up the majority of revenue for the NYSE Euronext holding company. While a slowdown in trading volume in the summer months and possible market share declines was expected to have an effect on NYX's earnings, the most recent 3rd quarter earnings report has indicated that the situation may not be as dire as originally thought. Through cost cutting and revenue diversifying measures, NYX's 3rd quarter net income was $0.49 per share, which was slightly higher than the $0.48 per share earned during the same period of last year. Analysts had expected a net income of $0.43 per share.

NYX is up approximately 17%, while the SPDRS S&P 500 Index ETF (NYSE:SPY) is up just under 7% since the beginning of the year.

Futures Exchanges
Turning to the Midwest, investors can also consider the Chicago based CME Group (Nasdaq:CME), home of the Chicago Mercantile Exchange, the Chicago Board of Trade, the New York Mercantile Exchange and Commodity Exchange. The CME Group's primary revenue streams are derived from its clearing and transaction fees in the futures and commodities markets. On these exchanges, speculators, producers and hedgers come together to trade gold, sugar, interest rate contracts and other investment products. CME also reported solid 3rd quarter earnings. Diluted EPS came to be $3.66, which is higher than the $3.04 earned in the same period of last year.

The CME Group is down approximately 14% since the beginning of the year.

Final Thoughts
Competition for company listings, investment products and trade execution are likely to keep industry competitors sharp and nimble without even taking into consideration the mountain of industry regulation poised just over the horizon. For investors, an investment here offers the opportunity to benefit from transaction fees earned by the exchanges and insight into the details behind how these financial markets are trading. (For more, see Getting To Know The Stock Exchanges.)

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