Stock Trading for Beginners
Stock Trading for Beginners
Stock Trading for Beginners
The stock market may look like an exercise that is in disarray, but it is a very efficient process that assists the buying and selling of securities. Because of the technological advancement, more trading is done with a small, if any, human intervention. This makes it as easy to sell 50 shares as it is to sell 50,000 shares.
Trading Stocks
The word trade' means to buy and sell in the financial market jargon. It remains a mystery to most people as to how a system can accommodate one billion shares trading in a single day. The financial markets are wonders of technological competence.
However, they still have to handle your order for 100 shares with the same care and documentation as someone else's order of 100,000 shares. You really need not to know all of the technical details of how you can buy and sell stocks. Nevertheless it is vital to have the basic understanding of how the markets work.
Two Ways to Trade
There are two basic methods exchanges execute a trade. First is on the exchange floor, and second is electronically. There is a persistent drive to move more trading off the trading floors and into networks. However, it is met with some resistance. Most market already trade stocks electronically.
Exchange Floor
Trading on the floor of the New York Stock Exchange is the picture most people have because of the television and movies showing how the market works. The moment the market opens, you see hundreds of people rushing to and fro, shouting and gesturing to one another, talking on phones, looking at the monitors and entering data into terminals. There is no place more hectic than the NYSE.
But, at the end of the day, the markets workout all the trades and prepare for the next day. Below is a step-by-step example of the execution of a simple trade on the NYSE:
You ask your broker to buy 100 shares of Mega World at the market.
Your broker's order department gives the order to their floor clerk on the exchange.
It is the floor clerk who alerts one of the firm floor traders who finds another floor trade willing to sell 100 shares of Mega World. This is less complicated that it looks like since the floor trader already has the idea which floor traders make markets in particular stocks.
Both agree on a fixed price and seal the deal. The notification process goes back up the line and your broker contacts you with the final price. The process may take a few minutes or longer depending on the stock and market. After a few days, an notice via email will serve as your confirmation.
Electronically
While the NYSE is still a human-based system, its rival NASDAQ is completely electronic. The electronic markets utilize large computer networks to match buyers and sellers, rather than human brokers. Though this system is far from the exciting image of the NYSE floor, it is efficient and fast. A lot of large institutional traders such as mutual funds chose this method of trading.
If you are an individual investor, you frequently can get almost immediate confirmations on your trades, if that is important to you. It also eases further control of online investing but placing you one step closer to the market.
You will still need a broker to handle your trades if you don't have access to the electronic markets. Your broker accesses the exchange network and system finds a buyer or seller depending on your order.
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