How a Ticker Symbol Is Used to Identify Stocks
A ticker symbol is a short code used to identify a specific stock or security. These identification codes were kept short to help investors and traders easily identify different securities and place orders. Knowing an institution's ticker symbol allows you to quickly access financial and investment-related information about them.
How a Ticker Symbol Works
Imagine you wanted to find information on The Coca-Cola Company. You can go to a search engine or your brokerage company's website and enter their ticker symbol, "KO," into the ticker symbol box and access most of the investment-related information you need. You'll see their dividend history, stock chart, stock split history, current ask and bid price, daily volume, dividend rate, price-to-earnings ratio, and other relevant information.
While most companies choose ticker symbols that suggest their full name—like Microsoft (MSFT), Amazon (AMZN), and eBay (EBAY)—some companies use their ticker symbol to communicate their brand and for marketing purposes. For example, Dynamic Materials Corporation, which is a metalworking company, uses the ticker symbol "BOOM," Harley-Davidson uses "HOG," and the Global Wind Energy ETF uses "FAN."
Companies With Multiple Ticker Symbols
Some companies have multiple classes of stock outstanding, most often in a dual-class setup that makes for an interesting capital structure. For example, spice giant McCormick & Company 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") have voting rights but receive a lower dividend per share.
It's not just common stock that has a ticker symbol; preferred stock does as well. Many businesses issue preferred stock, which gives shareholders a set dividend payout that is often considerably higher than the common stock. This is often the case with bank stocks.
Knowing the Ticker Symbol of Securities
Knowing an institution's ticker symbol is important when it comes to buying or selling shares. If you enter the wrong ticker symbol while making a trade, you're going to end up with the wrong asset—which can be costly. This error happens frequently enough that the media reports on obscure businesses with close ticker systems to popular companies skyrocketing as inexperienced investors mistakenly purchase their shares.
You can sometimes tell which exchange or market a stock trades on based on the number of letters in its ticker symbol. Generally, stocks with four or more letters trade on the NASDAQ and over-the-counter, but many over-the-counter stocks now trade with shorter ticker symbols. Large, blue-chip stocks with three or fewer letters tend to trade on the NYSE.
When a ticker symbol has an "E" or "LF" after its name, that means the institution has not met the Security and Exchange Commission's financial reporting conditions. Once they meet those requirements, the letters will be removed; if they fail to do so, they can be delisted and banned from trading until they meet the conditions.