How a Ticker Symbol Is Used to Identify Stocks
As a new investor, you are going to hear a lot about something called a ticker symbol. What is a ticker symbol? Why are ticker symbols important?
A Ticker Symbol Is a Short Code Used to Identify a Stock or Security
Simply put, a ticker symbol is a sort of identification code for a stock; a series of letters used to pull up all of the relevant information on a specific security including its current ask and bid price, daily volume, dividend rate, price-to-earnings ratio, SEC filings such as the 10-K and proxy statement, and a host of other relevant financial information.
Here is how it would work. Imagine you wanted to find information on The Coca-Cola Company. You could go to a major financial portal or your stock broker's webpage and enter "KO" into the ticker symbol box. After pressing the submit button, the site should bring up much of the information you need on Coke. You'll see its dividend history, stock chart, stock split history; the works.
Some Companies Have Multiple Ticker Symbols
Some companies have multiple classes of stock outstanding, most often a dual class setup that makes for an interesting capital structure. Spice giant McCormick has two classes of common stock. Shares trading under ticker symbol MKC, the one most people hold, have no voting rights but receive a higher dividend. Shares trading under ticker symbol MKC/V (sometimes listed as MKC-V or MKC.V depending on how the software programmers entered it on whichever website you are using) have voting rights but receive a lower dividend per share.
It's not just common stock that has a ticker symbol, either. Many businesses issue preferred stock, which doesn't participate in the profits but, instead, receives a set dividend payout that is often considerably higher than the common stock. You see this particularly often when researching bank stocks.
Know the Ticker Symbol of the Securities You Want to Buy or Sell
Unless you are talking to a stockbroker over the phone, which isn't as common these days now that people use the computers and mobile devices to handle most of their trades, you need to know the ticker symbol to buy or sell ownership in a business.
If you enter the wrong ticker symbol during the trade execution, you're going to end up with the wrong asset, which can be incredibly risky. This is a frequent enough error during stock market bubbles that the media reports on unrelated businesses with slightly different stock symbols skyrocketing as inexperienced investors put their hard-earned money into them!
Securities such as exchange-traded funds, or ETFs, aren't exempt from this danger, either. This evening, we saw two exchange-traded funds sponsored by the same mutual fund company, one of which was a leveraged ETF that increased disproportionately when the S&P 500 increased in value and the other of which was a leveraged ETF that decreased disproportionately when the S&P 500 increased in value because it used a short selling strategy. The only difference between these two polar opposite ETFs was a single letter in the ticker symbol.
You can sometimes tell on which exchange or market a stock trades based upon the number of letters in its ticker symbol. Stocks with four or more letters trade on the NASDAQ. Big, blue chip stocks with three or fewer letters tend to trade on the NYSE.