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Navigating The Stock Trading Systems

Aug 17, 2007
Stock trading is the process of buying and selling shares of stock. Almost everybody has heard about the stock trading system, but not everybody knows how this trading system works. Most people wonder how it is possible to trade billions of shares everyday. It does not matter if you do not know the technical side of the system. However, if you are planning to engage in stock trading, you must have a basic understanding of how the stock trading system works. Stock exchanges use two basic methods to execute the trading. The first is on the exchange floor and the second is electronically.

On the Exchange Floor
Hundreds of people rushing around, talking and shouting on phones, their eyes on computer monitors, and fingers on keyboards. This is the picture, which comes to our minds when we think about an exchange floor. Keeping in view this chaotic atmosphere, you might feel it a very complicated process to execute trading on the exchange floor. However, it is not as complicated as it seems at first. The following is a simple example that helps to understand the basics of how a trade is executed on the exchange floor.

When you decide to buy a certain number of shares of a specific company in the market, you ask your broker to do it for you.

The broker passes your order to the order department, which then sends your order to the floor clerk working in the exchange.

The floor clerk lets the floor trader of that specific firm know about your order. The trader finds another floor trader, who is willing to sell the number of shares you desire. This is where things look quite complicated, but it is not that difficult to comprehend. The floor trader has an idea, which floor trader will meet your requirement. The floor trader knows every detail about which floor traders trade in specific stocks.

When the floor trader finds someone, who is willing to sell the shares, after a few negotiations, they finalize the price and complete the deal.

Depending upon the stock and the market, the complete process may take from a few minutes to a few hours. The broker then notifies you about the deal.

Electronic Execution of Trading
The stock trading can also be executed through an electronic channel, where a firm does not need to deal with floor traders. It all works through a vast computer network that connects the buyers and the sellers. Indeed, it is more efficient and faster than the exchange floor. However, if you are looking to buy or sell shares individually, you still need to execute the process through a broker, as individuals do not get access to electronic markets. Your broker passes your order to the system, and the system in turn finds a buyer or seller for your order.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com
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