The stock market is full of things for people to invest their money into. There are thousands and thousands of stocks to choose from, and they are traded on multiple occasions. The first thing to know about the trade of stocks is that it actually does not mean to trade. Trading stocks is not the same as trading playing cards, it actually means to buy or sell stocks. The markets handle thousands of shares being traded each day, and it is a good thing that they do because trading stocks is complicated. Knowing the basics of how stocks are traded can be helpful in your understanding of how the markets work as a whole, especially if you are new to the stock market and you want to try your hand at getting involved with trading. Although the stock market can be confusing, just knowing the basics will get you started in the right way.
There are two methods to trading stock. These methods are on the actual exchange floor in the markets, or electronically. The method of exchanging on the floor is an image people have seen many times in movies. It is chaos. People are running around the floor and shouting to other people, they are on the phone, watching monitors and entering data. Markets have their own way of getting through the chaos and making everything work.
Here is how a trade would work on the exchange floor. Let’s say that you want to buy 100 shares of a certain stock. You would tell your broker that is involved with the exchange this information. The broker’s order department would then send the order to their floor clerk that is running around amongst the chaos. After this, the floor clerk will alert one of the firm’s floor traders, who then finds another floor trader that is willing to sell 100 shares from the company you want to buy shares from. The two people then agree on a price and complete the deal. After that, they will notify the broker, who will then call you back with the final price. This is a simple example, things can get much more complicated with bigger amounts of stocks.
Electronic stock trades work a little differently. The NASDAQ is completely electronic, while the New York Stock Exchange still has the exchange floor as its main type of trading. When you trade through the electronic process, large computer networks match buyers and sellers. This is unlike the exchange floor who uses people to make these connections. This type of trade is incredibly efficient and very fast. When you are an individual investor, you can get virtually instant confirmations on the trades that you make. With the exchange floor, you have to wait for your confirmation to arrive in the mail. When you are online, you still need a broker to handle the trades since individuals do not have access to the electronic markets.
Both types of stock trade work well for different people. Some people enjoy the personable experience of the exchange floor, along with the rush of excitement that comes along with it. Others enjoy being on the computer and getting instant results. Whatever your preferred method is, knowing the basics of what is happening during the trade will help you understand the stock market as a whole.