What does trading mean? Essentially, trading is about buying and selling. Whether it is car trading, baseball card trading, gold trading or stock trading, the same meaning applies. However, its complexity lies in the market which you are trading on. In stock trading, you will be trading in the financial market.
The financial market can accommodate millions to billions of shares every day. How a financial system can do this is still a mystery to date. If you want to be a stock trader, this is the market you need to familiarize yourself with. You must be able to handle every share you invest in.
Although knowing technical details about the stock trading will be a big help, it's not a requirement. As long as you understand the basics of how stock markets work, you can start trading. To help you out, here are two ways you can trade stocks:
The exchange floor that you commonly see in TV shows and movies is actually the New York Stock Exchange (NYSE). This is where hundreds of stockbrokers rush to the floor once the market opens. The place is very chaotic and if you're new to stock trading, you'll want to hire a stockbroker to do the floor trading for you.
How does a simple trade on the exchange floor work? First, you tell yours stockbroker how many shares you want to buy. Second, your stockbroker will send your share order to the floor clerks in the NYSE. Third, the floor clerk will find trader's who are willing to trade according to your share order. Last, the trader and the clerk will make a deal and will call you for the final price.
Trading on the exchange floor can take as little as few minutes. For more complex trades, the process involves more details than this.
While the NYSE is primarily a human-based type of trading, it does handle a small volume of its trading electronically. On the other hand, the NASDAQ is purely electronic in nature. Instead of human stockbrokers matching buyers and sellers of shares, the NASDAQ uses its computer networks to do the matching.
For sure, the NASDAQ lacks the drama and excitement that comes with trading on the exchange floor but some people prefer a faster and more efficient approach to stock trading. Large institutional traders prefer trading over the NASDAQ because of this. Further, individual investors can get their stocks confirmed almost instantly.
NASDAQ is for people who invests stocks online but you can't do this alone. You also need a stockbroker to do the trades as individual people are not given access to the electronic stock market. Hence, the stockbroker will use the exchange network while the system will do the matching.
Which one is better? That will depend on your preferences really. If you're someone who always like to see what's going on, the first option is for you. If you don't mind being behind the scenes and letting a system find matching traders for your orders, then go with the latter option.
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