Basics of Stock Trading

By | June 2, 2010

Trade means to purchase and sell in the jargon of the financial markets. Our financial markets are good in technology efficiency. However it is significance to understand how the markets work.

There are two basic ways exchanges execute a trade.
a. On the exchange floor
b. Electronically.

There is a solid push to carry more trading to the network and off the trading floor, this push meet with some resistance. Most of the markets, specially the NASDAQ, trades stocks electronically.

Exchange Floor:
At end of the day, markets work out all the trades and they get ready for the next day. There is a step-by-step walk by the implementation of a simple trade on the New York Stock Exchange.

  • Tell your broker to purchase 100 shares of ‘X’ company at market.
  • Order department of your broker sends the order to their floor clerk on the exchange.
  • One of the firm’s floor traders is alerted by the floor clerk who finds another floor trader willing to sell 100 shares of ‘X’ company.
  • Two should agree on a complete deal and price. The notification process will go up the line and you are called by your broker with the final price. The process would take a longer or few minutes, it depends on the stock and the market. Confirmation notice will be received by you in the mail.

This is the simple trade example, large blocks and complex trades of stocks involve considerable more detail.

The NYSE manages a small percentage of its volume electronically, but the rival NASDAQ manages completely electronically.

Vast computer networks are used by electronic markets to match buyers and sellers, rather than human brokers. It is efficient and fast. This method of trading is preferred by many large institutional traders like mutual funds, pension funds, and so on.

You can get almost instant confirmations for the individual investor on your trade, if that is important to you. It also assist further control of online investing through bringing you one step closer to the market.