The stock exchanges promote the orderly trading of stock shares of the companies that choose to list their shares with the different exchanges. There are over 5,000 companies listed on the two major U.S. stock exchanges: the New York Stock Exchange and the NASDAQ stock exchange.
U.S. Corporations May Be Publicly Traded or Privately Held
A corporation is owned by its shareholders, and selling shares on the open market is one way for a public company to raise capital. To promote trading of its stock, a corporation may choose to list its shares on a stock exchange. Apple, Walmart and Ford are high-profile publicly traded corporations, but smaller companies also trade on the major exchanges. Conversely, some large companies are private and their shares do not trade on the stock exchanges. The chemicals company S.C. Johnson & Son, Inc. (makers of Windex, among other household products) and Mars, Inc., the chocolate company, are privately held.
Several Types of Funds are Traded on the Stock Exchanges
Mutual funds are baskets of individual securities -- they may include stocks, bonds and other types of investments -- but the funds do not trade on a stock exchange. But shares of exchange-traded funds -- ETFs -- do trade on an exchange. ETF shares are baskets of assets, like mutual funds. Closed-end funds are another type of investment company with shares trading on the exchanges. A closed-end fund is like a mutual fund that sells shares only once; after the initial sale, the shares then only trade on a stock exchange.
Foreign Companies Can List Shares on a U.S. Stock Exchange
Foreign companies can list their shares on a U.S. stock exchange in the form of American depositary receipts. The individual shares that make up the ADR are American depositary shares. Depositary shares trading on a U.S. exchange are backed by shares of the foreign company held in trust by a U.S. bank. The use of ADR listings allow investors to buy foreign companies with a regular stock brokerage account. All transactions, including dividend payments, are converted to U.S. dollars.
Limited Partnerships and Real Estate Trusts Trade on the Exchanges
Two non-corporation types of companies also trade on the exchanges. Master limited partnerships and real estate investment trusts follow different tax rules than corporations. MLP and REIT investments must pass through the majority of income to shareholders and tend to pay higher yields than corporate shares. An MLP company will usually have L.P. at the end of its name; REIT companies often include the word "trust" in the name. Shares of an MLP are correctly referred to as units, and both types of companies technically pay distributions instead of dividends.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.