Stock symbols indicate identity, which is used to identify publicly traded companies by the letters. The ticker symbols are usually abbreviations using the company's name to identify a company's stock. Different stock exchanges use different rules for distributing stock symbols. For instance, securities traded in the New York Stock Exchange (NYSE) can contain up to four letters, with a few exceptions. However, NASDAQ stocks contain a maximum of five characters. The companies can select stock symbols of their own. Still, stock exchanges can refuse a company symbol when it's offensive, is a copy of the symbol of another company, or is misrepresented.
Understanding Stock Symbols
In the 1800s, before modern stock exchanges first came into existence, floor traders were required to relay the stock price of a traded company through writing or shouting their name and the business in full. When public companies grew from a few dozen to hundreds, they realized that this method was lengthy and slowed the information queue, inability to keep up with the constantly changing prices. This was especially true after the invention of the ticker tape for stock quote machines in 1867. To make it more efficient to communicate price changes in the company's stock to investors, the names of companies were reduced to using one or five Alpha symbols. Stock tickers continue to exist, but electronic displays have replaced ticker paper tape.
Apart from making it easier to save time and capture the exact price of a stock at the right moment, stocks are also helpful when two or more businesses have similar names. For instance, Citigroup (C) and Citizens Financial Group (CFG) have the same names, even though they're unrelated to one another: Citigroup is an international bank, and Citizens Financial Group is a company holding bank owned by Citizens Bank.
Some firms have spun off from the same company and have identical stock symbols. In November 2015, Hewlett-Packard split into two distinct companies: Hewlett Packard Enterprise (HPE) and HP Inc. (HPQ). Hewlett Packard Enterprise serves as the hardware and business service division and is focused on storage, servers, networking, and security. HP Inc. is the PC and printer division of the general public and has a lower market than HPE.
Ticker Symbols and Companies' Identities
Ticker symbols can be utilized to differentiate the identities of businesses, in particular when two companies have similar names. In the past, a false identity harmed several investors after mistakenly identifying ticker symbols with businesses, resulting in massive stock price increases.
For instance, MassMutual Corporate Investors (MCI) and MCI Communications (MCIC) have similar symbols. Yet, they aren't affiliated with each other or any other way. But when both companies' prices are examined in conjunction, there is a connection between their volatility, returns, and the volume of trade when MCIC has made major announcements about announcements.
NYSE has boosted the status of companies by inviting existing firms to switch ticker symbols or by enticing companies trading with other exchanges into joining NYSE by displaying prominent ticker symbols. This strategy has been a major factor in ensuring the status of businesses that trade on the NYSE.
How You Can Use Ticker Symbols
Understanding a company's ticker symbol is crucial in purchasing or selling shares. If a friend of a trader discusses a trending stock when another trader uses an incorrect ticker symbol in trading, the trader could end up with the wrong investment. It could be a costly error. The tickers let traders set up watch lists or utilize software to track stock price fluctuations. This makes finding trades easy since tickers can be organized in ways that will help you keep your investments organized. If a ticker symbol includes the letter "E" after its name, the company is not in compliance with the regulations regarding financial reporting. When they have met the requirements, exchanges can remove the letter. If they do not, firms could be removed from the list and prevented from trading for some time until they comply with the regulations.
Tickers Can Be Confusing
A small business called Zoom Technologies (ZTNO), misunderstood as Zoom Video Communications (ZM) from the year 2020, experienced an abrupt increase in trading when people started working on Zoom technology to collaborate remotely in the course of COVID-19. The SEC shut down the trading of the stock for a brief time to avoid investors' confusion. Many investors had already given up on the idea of investing in herd behavior.
