Pass by any stock exchange and you're likely to see numbers and letters flying by, but do you know what they are? Ticker symbols serve as the base language of any stock exchange and it's important to understand them if you plan to invest. Learn more about what a ticker symbol is, why they are important, and how they can help you invest smarter.

What Is a Ticker Symbol?

A ticker symbol is an abbreviation -- generally represented as a collection of letters -- that is used to identify a publicly traded security. Ticker symbols vary depending on what stock market they are traded on. They can consist of letters, numbers, or a combination of both. Sometimes they are also called "stock symbols."

When they were first developed, they were designed to be as short as possible so they could fit on to the tapes printed by the stock-quoting ticker machines of the mid-1800s. While we use digital displays today, the ticker symbols remain short in length.

How Does a Ticker Symbol Work?

Each stock market uses a different naming convention for ticker symbols. Typically, securities listed on New York Stock Exchange or American Stock Exchange have three or less characters. Stocks listed on Nasdaq have four characters to five characters. Typically the ticker symbol is an abbreviation of the company name, this isn't always the case. Most companies get to select their ticker symbol once they become publicly traded entities. 

Names can also tell you the type of security and other important information. Option ticker symbols are based on the asset and contract terms. Mutual fund ticker symbols usually consist of letters and end with the letter X. When a ticker symbol has an "E" or "LF" following its name, this shows that the company has not met the Securities and Exchange Commission's reporting requirements. If the company never follows up on this reporting, they will be barred from trading the stock until the requirements are met.

You will see ticker symbols most often on stock tickers -- the digital screens that show the prices of securities and how they are being traded in real time. When looking at a stock ticker, you will see the ticker symbol, followed by additional letters and numbers that provide information about the company's security pricing, whether that price is going up or down, their trade volumes, and more.

What Is the Importance of a Ticker Symbol?

In short, ticker symbols are important because they are used to accurately identify publicly traded stocks and equities. They are the backbone of being able to read and understand a stock ticker.

They become especially useful when multiple companies have similar names but are not affiliated with one another. It can also be helpful for differentiating company divisions that perform entirely different services or carry entirely different products.

If an investor hopes to put money into a stock, it's important for them to identify the correct ticker symbol. This ensures that they are performing their due diligence and ultimately investing in the correct company.

When trading on Nasdaq, it can also be a good indicator of when to take a dive deep into a company's history and current status before investing. This is especially important when seeing the following letters tacked to the end of a ticker symbol name:

  • C: Company does not meet the stock exchange's listing requirements
  • E: Missing one or more SEC filings
  • L: Miscellaneous. This could have a wide variety of meanings that investors would need to be aware of.
  • Q: Company has declared bankruptcy.
  • V: Shares are preparing to go through a corporate action plan that could impact shareholders.
  • Z: Miscellaneous. Like the letter L, this could have a wide variety of meanings that are important to be aware of.

Ticker Symbol Examples

Securities listed on the New York Stock Exchange typically have three or less characters and are similar to the company names. Here are some examples of NYSE ticker symbols and the companies they represent:

Securities listed on Nasdaq have longer ticker symbols, such as:

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