Where Can Investors Buy and Sell Preferred Stock?

Preferred stock offers investors a blend of equity ownership and fixed-income characteristics. This security typically pays regular, fixed dividends, similar to bond interest payments, and holds a higher claim on a company’s assets and earnings than common stock in the event of liquidation. Understanding where and how to buy or sell preferred stock is important for investors. This article guides readers through the avenues available for trading preferred stock on the secondary market.

Understanding Primary and Secondary Markets

When a company or government first issues new preferred stock, it does so in the primary market. This initial sale often involves investment banks acting as intermediaries to facilitate the offering to initial investors, who are frequently large institutions. Preferred stock is created in this market to help entities raise capital.

Once these shares have been sold in the primary market, they can be traded among investors in the secondary market. This is the market most individual investors are familiar with, encompassing stock exchanges and other trading venues. In the secondary market, transactions occur between a buyer and a seller, not directly with the issuing company. This market provides liquidity, allowing investors to buy or sell existing shares.

Accessing Secondary Markets for Preferred Stock

Investors typically access the secondary market for preferred stock through various venues. The most common avenues include major stock exchanges and the over-the-counter (OTC) market, both facilitated by brokerage firms.

Many preferred stocks are listed and traded on major stock exchanges, such as the New York Stock Exchange (NYSE) and NASDAQ. These exchanges provide a centralized and transparent marketplace where buyers and sellers are matched. Trading on an exchange generally means greater liquidity, allowing for easier execution of trades at more predictable prices.

Preferred stock not listed on a major exchange trades in the over-the-counter (OTC) market. This market is a decentralized network where securities transactions occur directly between dealers and investors, rather than on a formal exchange. While the OTC market offers access to a broader range of preferred issues, these securities might experience lower liquidity and less transparent pricing compared to exchange-listed preferreds.

Individual investors typically access both exchange-listed and OTC preferred stock through a brokerage account. Brokerage firms act as intermediaries, providing platforms and services for investors to place buy and sell orders. These firms connect investors to the various markets, enabling them to execute trades for their preferred stock holdings.

Steps to Trade Preferred Stock

Engaging in preferred stock transactions requires a series of steps, primarily facilitated through a brokerage firm. The process begins with establishing an investment account, followed by identifying specific securities and executing trades. Finally, investors monitor their holdings to track performance and dividends.

The first step involves opening an investment account with a brokerage firm. This process generally requires providing personal information, such as your legal name, address, date of birth, and Social Security number. You will also typically need to provide employment status, annual income, and net worth. Identity verification usually involves uploading a government-issued ID and proof of address.

Once the account is open, funding it is the next step, which can typically be done by linking a bank account for electronic transfers or through wire transfers. After the account is funded, investors can begin researching specific preferred stock issues. Brokerage platforms often provide tools and screeners to help identify preferred stocks that align with investment objectives. It is important to note that preferred stock ticker symbols can sometimes be confusing, as they may include specific characters (like ‘p’ or ‘P’) to denote their preferred status, and conventions can vary between exchanges and platforms.

After selecting a preferred stock, investors can place a trade order through their brokerage platform. Essential order details include the stock symbol, the number of shares to buy or sell, and the order type. A market order instructs the brokerage to execute the trade immediately at the best available price, while a limit order specifies a maximum buy price or a minimum sell price, ensuring the trade is executed only if those price conditions are met. For less liquid preferred stocks, using limit orders is often recommended to avoid unfavorable pricing.

Once an order is placed and executed, the transaction enters the settlement process. For most securities, the standard settlement period is T+1, meaning the trade is finalized one business day after the order is executed. During this period, the buyer’s funds are transferred to the seller, and ownership of the shares is officially transferred to the buyer. After settlement, investors can monitor their preferred stock holdings and the dividends received through their brokerage account statements and online dashboards.