You've seen them on business programs or financial news networks: a flashing series of baffling letters, arrows and numbers scrolling along the bottom of your TV screen. While many people simply block out the ticker tape, aka the ticker, others use it to stay on top of market sentiment and track the activity of certain stocks. What exactly is that cryptic script reeling by? It obviously tells us something about stocks and the stock markets, but how does one read a stock ticker tape and use it to their advantage?
Firstly, a tick is any movement, up or down, however small, in the price of a security. Hence, a ticker tape automatically records each transaction that occurs on the exchange floor, including trading volume, onto a narrow strip of paper or tape.
The first ticker tape machine was developed in 1867, following the advent of (and using the same technology as) the telegraph machine, which allowed for information to be printed in easy-to-read scripts. During the late 19th century, most brokers who traded at the New York Stock Exchange (NYSE) kept an office near it to ensure they were getting a steady supply of the tape and thus the most recent transaction figures of stocks. These latest quotes were delivered by messengers, or "pad shovers," who ran a circuit between the trading floor and brokers' offices. The shorter the distance between the trading floor and the brokerage, the more up-to-date the quotes were.
Ticker-tape machines introduced in 1930 and 1964 were twice as fast as their predecessors, but they still had about a 15-to-20 minute delay between the time of a transaction and the time it was recorded. It wasn't until 1996 that a real-time electronic ticker was launched. It is these up-to-the-minute transaction figures – namely price and volume – that we see today on TV news shows, financial wires, and websites; while the actual tape has been done away with, the name stays.
Due to the nature of the markets, investors from all corners of the globe are trading a variety of stocks in different lots and blocks at any given time. Therefore what you see one minute on a ticker could change the next, particularly for those stocks with high trading volume, and it could be some time before you see your ticker symbol appear again with the latest trading activity.
Reading the Ticker Tape
Here's an example of a quote shown on a typical ticker tape:
|Ticker Symbol||The unique characters used to identify the company.|
|Shares Traded||The volume for the trade being quoted. Abbreviations are K = 1,000, M = 1 million and B = 1 billion|
|Price Traded||The price per share for the particular trade (the last bid price).|
|Change Direction||Shows whether the stock is trading higher or lower than the previous day's closing price.|
|Change Amount||The difference in price from the previous day's close.|
Throughout the trading day, these quotes will continually scroll across the screen of financial channels or wires, showing current, or slightly delayed, data. In most cases, the ticker will quote only stocks of one exchange, but it is common to see the numbers of two exchanges scrolling across the screen.
You can tell where a stock trades by looking at the number of letters in the stock symbol. If the symbol has three letters, the stock likely trades on the NYSE or American Stock Exchange (AMEX). A four-letter symbol indicates the stock likely trades on the Nasdaq. Some Nasdaq stocks have five letters, which usually means the stock is foreign. This is designated by an "F" or "Y" at the end of the stock symbol.
On many tickers, colors are also used to indicate how the stock is trading. Here is the color scheme most TV networks use:
Green indicates the stock is trading higher than the previous day's close.
Red indicates the stock is trading lower than the previous day's close.
Blue or white means the stock is unchanged from the previous closing price.
Before 2001, stocks were quoted as a fraction, but with the emergence of decimalization all stocks on the NYSE and Nasdaq trade as decimals. The advantage to investors and traders is that decimalization allows investors to enter orders to the penny (as opposed to fractions like 1/16).
Which Quotes Get Priority?
There are literally millions of trades executed on more than 10,000 different stocks each and every day. As you can imagine, it's impossible to report every single trade on the ticker tape. Quotes are selected according to several factors, including the stocks' volume, price change, how widely they are held and if there is significant news surrounding the companies.
For example, a stock that trades 10 million shares a day will appear more times on the ticker tape than a stock that trades 50,000 shares a day. Or if a smaller company not usually featured on the ticker has some ground-breaking news, it will likely be added to the ticker. The only times the quotes are shown in predetermined order are before the trading day starts and after it has finished. At those times, the ticker simply displays the last quote for all stocks in alphabetical order.
The Bottom Line
Constantly watching a ticker tape is not the best way to stay informed about the markets, but many believe it can provide some insight. Tick indicators are used to easily identify those stocks whose last trade was either an uptick or a downtick. This is used as an indicator of market sentiment for determining the market's trend.
So next time you're watching TV or surfing a website with a ticker, you'll understand what all those numbers and symbols scrolling across your screen really mean. Just remember that it can be near impossible to see the exact price and volume at the precise moment it is being traded. Think of a ticker tape as providing you with a general picture of a stock's "current" activity.