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Stock Market Trading - How it Works
By Sunny of Bigplanners.com
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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If you want to avoid buying or selling stock at a price higher or lower than you intend, you must place a limit order instead of a market order. When placing a limit order, you specify the price at which you will buy or sell. You can place either a buy limit order or a sell limit order. Buy limit orders can be executed only when the price of the stock you are buying is at the limit price or lower. A sell limit order can be executed only when the selling price is at the limit price or higher. In other words, you set the parameters for the price that you will accept.
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