Stock Trading Basics

Posted by Nick Niesen on November 8th, 2010

Stock trading can be a very profitable business, but there is also a lot of risk that is involved in this venture. By knowing exactly what happens during a stock trade, you will be a better trader and make it possible to minimize your losses. To trade a stock is to buy or sell shares of it. The stock markets trade over a billion shares daily, and it does it very efficiently. A trade for ten or a hundred shares of stock is handled with the same professional care that a trade for ten thousand shares is.

There are two basic methods of executing a trade on the stock. These are trades that are executed electronically and trades that are executed on the exchange floor. The exchange floor trading is the chaotic image that everyone knows from television and the movies. You notify your broker that you want X number of shares in company Y. The order department for your broker sends out your order to their floor clerk, who is on the floor of the exchange. The floor clerk notifies the floor trader of the order, and the floor trader finds another floor trader who is willing to sell X shares of Y company to fill your order. This is not as complicated as it looks, because floor traders know which markets other floor traders trade in. A price is agreed upon between the two floor traders, and the deal is finished. The floor trader notifies the floor clerk that the deal is done, and the floor clerk notifies your broker, who notifies you.

Electronic stock trading uses vast numbers of computers to match up sellers and buyers of specific stocks. This system takes the place of the human brokers on the floor of the stock exchange. Trading stocks electronically is very quick and very efficient. This method is good for individual investors because you get a confirmation of your trade almost instantly. This method of trading may not have the raw adrenaline of the stock exchange floor, but it is much more efficient.

Whether you chose to trade with a broker who uses the exchange floor or you choose to trade electronically, finding great stocks to trade in is very important for successful stock trades. It does not matter which trade execution method you use if the stocks you pick to trade in are losers that cost you money. Research the market and find good reliable stocks to trade in. Sometimes it is better to make small gains and come out ahead then it is to make one big lump and then lose it in minutes. No matter how you choose stocks to trade in, stock trading is always a risk and this should be taken into consideration before you start trading stocks.

Copyright © 2007 Joel Teo. All rights reserved.