If you’re familiar with the Indian stock market, its American counterpart - the American share market is the next natural alternative to cover. It is one of the largest and most valued in the world. For perspective, the Nasdaq’s (one of America’s exchanges) market cap as of 2 February 2023 is $19 trillion, while India’s NSE is about one-sixth its size at $3.4 trillion. These numbers are simply meant to give you an indication of the size of the opportunity in front of you if you’re considering investing in the American market. In this article, we’ll take an overview of the American stock market, the two main indices in it, and some other key facts.
The stock market in America is a set of stock exchanges. On these stock exchanges, just like we do here in India with the BSE and the NSE, you can buy shares of any company listed on these exchanges. Here’s a list of the major stock exchanges in the US:
The American share market comprises several large stock exchanges like the ones listed at the beginning of this article. But the two main stock exchanges are the NYSE and Nasdaq. They work like any other stock exchange, including our very own NSE, but there are a few differences.
The NYSE, for example, uses an auctioning system to sell stocks. This is what you see in Wall Street-based movies. Nasdaq, on the other hand, has a direct computerised trading system that matches buyers with sellers. Another key difference is that Nasdaq largely lists all the well-known tech stocks and has a sharper focus, while the NYSE is a much broader market and lists stocks of almost all kinds.
Just like we have indices like the Nifty 50 here in India, the American stock market also comprises two very well-known indices.
The S&P 500 and the Dow Jones are two major indices that help keep a pulse on the US economy. The S&P 500 (Standard & Poor 500) is a broad market index comprising 500 stocks ranked by market capitalisation, similar to the Nifty 50 back home in India, which also ranks 50 companies by their market capitalisation weighted against the number of stocks available to trade.
The Dow Jones, on the other hand, is an index of 50 stocks ranked by stock price alone, which makes it easier to follow. It is also America’s oldest stock market index.
The S&P 500 has shown a gradual and steady growth of around 10.5% each year from the time of its establishment in the 1920s. If we use this as a barometer to gauge market development, you can estimate that the growth of the stock market in terms of value is similar in the amount it grows every year. There is, of course, a distinct element of the fact of probability, as some years see less growth and some see more. Additionally, since the stocks significantly account for the critical components of the exchanges, and in turn, the markets, some stocks may grow, and some may decline.
Investing in the US stock market doesn’t have to be a complicated process. You can try Fi Money to invest in the US stock market - you can simply create an account in a few simple steps, after which you can buy and sell stocks at absolutely no extra costs or commissions.
It is possible to buy just 1 share. In fact, you can buy less than one, because you can buy fractional shares in the US market (just a portion of a share instead of the whole share). On a publicly traded stock or a share, a minimum limit on orders does not exist.
The management of the American stock exchanges, the New York Stock Exchange and the NASDAQ that make up the American share market, is done by a regulatory authority. This is the Securities and Exchange Commission or the SEC. (similar to India’s SEBI) By and large, the stock exchanges are run by their owner organisations - the NYSE by the Intercontinental Exchange (a holding company) and the NASDAQ by NASDAQ Inc. While the regulatory body (SEC) supervises their operations.