Introduction in Stock Trading

A common myth when people try to portray the idea of stock trading in their minds is to conjure up the picture of several men wearing suits shouting and arguing with each other inside an enormous building, usually hailing from New York, for the sole purpose of squabbling over money. While there is truth in this myth, stock trading nowadays involves more than that, bringing about a complex chain where people gain money and trades are made.

At its most basic level, a trade involves the exchange of something, goods or money between distinct traders or companies. Such trades are usually orchestrated by brokers and investors make profits from the goods they have invested in the market.

Stock trading involves two primary types of trading, the more traditional way where brokers do the buying or selling for investors, or the more technological way where trades are being operated online by computers.

The Traditional Way of Trading

Earlier in the article, we conjured up the image of people in suits arguing inside a huge office over money. This image, taken from movies or television, resembles what actually happens in NYSE, the stock exchange from New York, which is occupied, as the name suggests, with exchange floors. It houses a number of individuals, called brokers, who negotiate prices in traders for their respective customers and either buy or sell stocks.

While life on exchange floors may seem close to helter-skelter , the chaos around is actually ordered. The mechanism of trading stocks happens in the following manner: a broker receives the order to purchase a fixed amount of stock available on the market. After the order is received, it is forwarded to the floor clerk. At his turn, the clerk informs other floor traders that belong to the same company of the offer, so that other interested traders can be found. When the two parties arrive to an agreement upon the price, the broker contacts the buyer to inform him or her of the developments and the price.

This process of negotiating might take several minutes or more, depending on how well the stocks and thus the market respond to the exiting demand. In the case of more complex trades or big stock orders, several steps are required and negotiations may take longer than in the normal case, but the principles behind are the same.

The Electronic Way of Trading

The trend nowadays is to trade stock electronically through the help of computerized assistance. While the NYSE is an institution functioning through brokers, the NASDAQ, which stands for  the National Association of Securities Dealers Automated Quotations, operates electronically by trading stocks online.

This special means of trading uses only complex computerized networks which are able to find buyers and sellers online, and have nothing to do with human stockbrokers. Because everyone is computer-aided, transactions are made faster, easier in order to bring more efficient results.

How trades are done faster? For one thing, confirmation to open the trades are received online, and thus faster, and stock search engines are also able to find more available stocks in a smaller amount of time through the Internet; while investors cannot access electronic market that easily, transactions are still finalized by brokers, but investors are the one making decisions around and do not have to wait for the approval of no one.

The two described processes are not always transparent to the respective investors because in both ways, an investor would receive updated reports on the stock trades and brokers would contact him or her to confirm the decision or ask for approval, but what happens in the background until the decisions are made cannot be seen by the investor.

Due to the investments that are negotiated each day, many businesses are still running in the industry. Investors who have placed their capital into a business also receive their earnings if the businesses they have invested in flourish. Despite its complexity and the large amount of operations being made, in the end man people get their earnings through the stock market. Because it's the final result that matters, the vast complexity could thus be reduced to a fairly simple concept.