Sunday, March 22, 2015

Stock Market Trading - How it Works

We've all seen images of the crazy trading floors on Wall Street. The floor is littered with paper, sweaty traders shouting at the top of their lungs at other traders who are shouting at the top of their lungs as well, bells are ringing and numbers are flashing by on the overhead screens. It seems like chaos and yet millions of dollars are made and lost by the trades that happen there every day. So what exactly is stock market trading and how does it work? All that you need to know are a couple of key terms to have a basic understanding of what makes the stock market tick.

When stock market professionals use the word trade, they don't mean it in the same way a child does when trading baseball cards. In the stock market trading means to sell. There are two ways to trade stock, either on the floor of the stock exchange or through electronic or internet based trading services. Most trading that happens on the stock exchange floor is accomplished by brokers and clerks.
So, if you were interested in buying 100 shares of a certain stock, you would tell your broker, who would issue an order for the stock to his firm's clerk on the floor of the stock exchange. That clerk would then look for another clerk with 100 shares of the desired stock to sell. Once the two have agreed upon a price (this is where a lot of the shouting occurs) the deal would be complete and in a couple of days you would be the proud owner of 100 shares of the new stock.
Stock market trading that takes place electronically, like NASDAQ, uses immense computer networks to match up human buyers with sellers, instead of relying on human floor traders to do it. While this method isn't nearly as exciting as the trading that takes place of the floor of the New York Stock Exchange, it is much freer from human error and is the preferred method for many large institutional investors. If you are an individual investor that likes to be able to watch the market move and wants constant access to your portfolio and confirmations of your trades, that electronic trading is the method for you.
No matter which method of stock market trading you choose to use, it is always wise to seek the services of a qualified broker and financial advisor before putting any of your money into the stock market.
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