Those baffling flashing letters, arrows, and numbers that scroll along the bottom of your television screen are nothing new. You’ve probably seen them on business programs or financial news networks. While many people choose to ignore the ticker tape, also known as the ticker, others use it to stay on top of market sentiment and track the activity of specific stocks, among other things.
What exactly is that cryptic script that’s reeling through your head? Unquestionably, it provides information about stocks and stock markets, but how does one interpret and use a ticker tape to one’s benefit?
A Brief Overview of the Past
To begin, a tick is any movement in the price of a security, whether it is an increase or a decrease, no matter how small. In order to do so, each transaction that takes place on the exchange floor, including trading volume, is automatically recorded onto a narrow strip of paper or tape by the ticker tape.
It was in 1867 that the first ticker tape machine was developed, following the introduction of (and utilizing the same technology as) the telegraph machine, which allowed for information to be printed in easy-to-read scripts to be displayed. During the late nineteenth century, the majority of brokers who traded on the New York Stock Exchange (NYSE) maintained an office in the vicinity of the exchange to ensure that they had a constant supply of tape and, consequently, the most recent transaction figures for stocks.
These most recent quotes were delivered by messengers, also known as “pad shovers,” who made a round trip between the trading floor and the offices of brokers. The closer the trading floor was to the brokerage, the more up-to-date the quotes were.1
Despite the fact that ticker-tape machines, which were introduced in 1930 and 1964, were twice as fast as their predecessors, there was still a 15 to 20 minute lag between the time of a transaction and the time it was recorded on the machine. Not until 1996 was a real-time electronic ticker introduced on a stock exchange. It is these up-to-the-minute transaction figures – namely, price and volume – that we see on television news shows, financial wires, and websites today; while the physical tape has been replaced by digital technology, the name has remained.
Because of the nature of the markets, investors from all over the world are actively trading a diverse range of stocks in a variety of lots and blocks at any given point in time. As a result, what you see on a ticker one minute could be completely different the next, especially for stocks with high trading volume, and it could take some time before your ticker symbol appears again with the most recent trading activity.
Using the Ticker Tape to Keep Track
As an example of a quote that would be displayed on a typical ticker tape:
Ticker for the Stock Market
|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.|
The ticker symbol is a set of characters that is used to identify a particular company.
Shares are traded on the stock market.
The amount of money involved in the trade being discussed. K = 1,000, M = 1 million, and B = 1 billion are abbreviations for the numbers K, M, and B.
Traded at a certain price
The price per share for the specific trade was determined (the last bid price).
Change your course of action.
When the stock is trading higher or lower than the previous day’s closing price, this indicator is displayed.
Amount of Change
The difference between the price at the close of the previous day and the current price.
While trading, these quotes will continuously scroll across the screen of financial channels or wires, displaying current or slightly delayed data. Most of the time, the ticker will only quote stocks from a single exchange, but it is common to see the tickers from two different exchanges scrolling across the screen at the same time.
By examining the number of letters in the stock symbol, you can determine where a stock trades on the market. If the stock symbol consists of three letters, the stock is most likely traded on the New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX) (AMEX). The presence of a four-letter symbol indicates that the stock is most likely traded on the Nasdaq. Some Nasdaq stocks have five letters, which usually indicates that the stock is a foreign stock, according to the NASDAQ. This is indicated by the addition of a “F” or “Y” to the end of the company’s stock symbol. 2
Colors are also used on many tickers to indicate the direction in which the stock is trading. The following is the color scheme that most television networks employ:
- The color green indicates that the stock is trading higher than it did at the close of the previous day.
- The color red indicates that the stock is trading lower than it did at the close of the previous day.
- The color blue or white indicates that the stock’s price has remained unchanged from its previous closing price.
Prior to 2001, stocks were quoted as fractions; however, with the introduction of decimalization, all stocks traded on the NYSE and Nasdaq are now quoted as decimals as well. Investment and trading professionals will benefit from decimalization because it allows them to enter orders down to the penny (as opposed to fractions such as 1/16).
Which quotations are given precedence?
Every day, literally millions of trades are executed on more than 10,000 different stocks, resulting in a total of millions of trades per day. Given the volume of trades that occur on the ticker tape, it is impossible to report every single transaction. Many factors influence the selection of quotes, including the volume of shares traded, the price change, how widely the stocks are held, and whether or not there is significant news surrounding the companies.
When a stock trades 10 million shares per day, it will appear on the ticker tape more frequently than a stock that trades 50,000 shares per day, for example. Alternatively, if a smaller company that is not typically featured on the ticker announces some significant news, it will almost certainly be added to the ticker. The only times the quotes are displayed in a predetermined order are just before the trading day begins and just after the trading day has ended. During those periods, the ticker simply displays the most recent quote for all stocks, which are displayed in alphabetical order.
What’s the bottom line?
Although constantly scanning the ticker tape is not the most effective method of staying informed about the markets, many people believe it can provide some valuable insight. Tick indicators are used to quickly identify stocks whose most recent trade resulted in either an uptick or a downtick in price. This is used as an indicator of market sentiment in order to determine the direction of the market.
So the next time you’re watching television or browsing a website that has a ticker, you’ll know exactly what all of those numbers and symbols scrolling across your screen are referring to. Just keep in mind that it can be nearly impossible to see the exact price and volume of a trade at the precise moment it is being conducted. Consider a ticker tape to be a visual representation of a stock’s “current” activity, which you can use to make investment decisions.