Trading stocks. You hear that phrase all the time.
Trade = Buy or Sell
To “trade” means to buy and sell in the jargon of the financial markets. How a system that can accommodate one billion shares trading in a single day works is a mystery to most people. No doubt, our financial markets are marvels of technological efficiency.
You don’t need to know all of the technical details of how you buy and sell stocks, however it is important to have a basic understanding of how the markets work. If you want to dig deeper, there are links to articles explaining the technical side of the markets.
Two Basic Methods
There are two basic ways exchanges execute a trade:
• On the exchange floor
• Electronically
There is a strong push to move more trading to the networks and off the trading floors, however this push is meeting with some resistance. Most markets, most notably the NASDAQ, trade stocks electronically. The futures’ markets trade in person on the floor of several exchanges, but that’s a different topic.
Exchange floor
Trading on the floor of the New York Stock Exchange (the NYSE) is the image most people have thanks to television and the movies of how the market works. When the market is open, you see hundreds of people rushing about shouting and gesturing to one another, talking on phones, watching monitors, and entering data into terminals. It could not look any more chaotic.
Yet, at the end of the day, the markets workout all the trades and get ready for the next day. Here is a step-by-step walk through the execution of a simple trade on the NYSE.
1. You tell your broker to buy 100 shares of Acme Kumquats at market.
2. Your broker’s order department sends the order to their floor clerk on the exchange.
3. The floor clerk alerts one of the firm’s floor traders who finds another floor trader willing to sell 100 shares of Acme Kumquats. This is easier than is sounds, because the floor trader knows which floor traders make markets in particular stocks.
4. The two agree on a price and complete the deal. The notification process goes back up the line and your broker calls you back with the final price. The process may take a few minutes or longer depending on the stock and the market. A few days later, you will receive the confirmation notice in the mail.
Of course, this example was a simple trade, complex trades and large blocks of stocks involve considerable more detail.
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"We’re going to break down stock trading training for beginners so it doesn’t seem scary. One of the first things you need to do when you start out is to pick a good broker. A stock broker is going to be where you do all your business. Picking one that has large commissions and fees can be detrimental to a beginner.
ReplyDeleteAn important second step is going to be learning how to read a stock chart. The stock chart holds all of the clues to which direction the stock is going to move. Watch our ThinkOrSwim video on charts setup.
Another great resource for learning to read a chart is stockcharts.com. They have a chart school for any questions that you might have. Charts can look like Greek when you’re starting out. The more you look at a chart, the more you’ll understand it and be able to predict trends.
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"We’re going to break down stock trading training for beginners so it doesn’t seem scary. One of the first things you need to do when you start out is to pick a good broker. A stock broker is going to be where you do all your business. Picking one that has large commissions and fees can be detrimental to a beginner.
ReplyDeleteAn important second step is going to be learning how to read a stock chart. The stock chart holds all of the clues to which direction the stock is going to move. Watch our ThinkOrSwim video on charts setup.
Another great resource for learning to read a chart is stockcharts.com. They have a chart school for any questions that you might have. Charts can look like Greek when you’re starting out. The more you look at a chart, the more you’ll understand it and be able to predict trends.
"We’re going to break down stock trading training for beginners so it doesn’t seem scary. One of the first things you need to do when you start out is to pick a good broker. A stock broker is going to be where you do all your business. Picking one that has large commissions and fees can be detrimental to a beginner.
ReplyDeleteAn important second step is going to be The stock chart holds all of the clues to which direction the stock is going to move. Watch our ThinkOrSwim video on charts setup.
Another great resource for learning to read a chart is stockcharts.com. They have a chart school for any questions that you might have. Charts can look like Greek when you’re starting out. The more you look at a chart, the more you’ll understand it and be able to predict trends."