What it means
The ticker machine was invented in the nineteenth century to send stock prices over telegraph wires. It printed abbreviated company names, called ticker symbols, alongside the latest price and the number of shares traded.
The name came from the ticking sound the machine made as it printed. Before this invention, price information had to be carried by hand or by messenger, so investors far from an exchange were at a disadvantage.
The ticker spread information quickly and made markets more transparent. It helped shape modern financial markets by making prices visible to a wider audience.
Paper tape was eventually replaced by electronic displays, and today the data is delivered by computer networks. The scrolling banner on a television channel or website is a direct descendant, and it still follows the same format of symbol, price and change.
Real-time feeds are usually provided by data vendors for a fee, while delayed versions are often free. Reading a tape means understanding the symbols and numbers.
A typical entry shows the ticker symbol, the last traded price, the change from the previous close and the size of the trade. Colours or arrows show whether the price is up or down.
For managers, the tape is a quick way to watch the market, though it can distract from long-term thinking. Prices on the tape are the prices at which trades have just happened, which is not the same as the fair value of a business.
The phrase "ticker tape parade" is a reminder of the old paper strips that were once thrown from windows during celebrations. Data quality is worth a thought.
Prices on a tape can be corrected after the event if an error is found, and the volume shown may include several kinds of trades. Professionals rely on official end-of-day data for accounting and valuation, and treat the live tape as an indication only.
In practice
Real-world examples.
Example
A trader at a small brokerage watches a scrolling feed of prices for her client's shares. She sees a series of large trades at rising prices and calls the client to discuss, since the pattern may mean that other buyers are competing for the same stock. The client decides to place an order before the price moves further.
Example
A finance journalist reads the tape on a screen while writing a report on a market sell-off. She notes the volume of trades at falling prices. The details help her explain how fast the market moved.
Example
A retired investor puts a ticker banner on his computer showing the prices of the companies he owns. He glances at it a few times a day but avoids making decisions from small changes. He prefers to review his portfolio once a month, because his goals are long term. The banner is there mainly to keep him informed about the broad direction of the market.
Case study
Seen in the real world.
Brookfield Securities is an illustrative, fictional brokerage that wanted to improve its client website. Research showed that clients often asked for live price feeds, but the firm worried that constant movement would encourage excessive trading.
The product team tested two designs with 200 clients. One included a scrolling tape on every page, and the other offered a watchlist that clients could open when they wished. Clients using the tape made about 20% more trades, but their average returns were slightly lower after fees.
In this illustrative result, the firm chose the watchlist design for the main pages and offered the scrolling tape only as an optional feature. The head of product explained that giving clients information was valuable, but encouraging them to react to every tick was not in their interest. The firm also published a short guide on how to read the tape, so clients understood what the numbers did and did not tell them.
Watch out
Common mistakes.
- Believing the tape shows every trade in real time, when free versions are often delayed.
- Reading the last price as the true value of a company, when it is only the latest agreed price. The value of a business depends on its future cash flows, which no tape can show.
- Reacting to every movement on the tape, which often leads to excess trading and higher costs.
Questions
People also ask.
Where did the name come from?
It comes from the ticking sound of the old telegraph machine that printed prices on a paper tape. The machine used abbreviations to save paper and transmission time, which is why ticker symbols are so short.
What is a ticker symbol?
A short code, usually of one to five letters, that identifies a listed company on the exchange. The same company can have different symbols on different exchanges, so it is wise to confirm the market.
Is it still used?
Yes, in electronic form, as the scrolling banner on financial television and websites. The format has barely changed, even though the technology behind it has been transformed.
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