You feel their presence all the time. When you say business, or trade, the image that comes to mind are easily people in business suits engaged in phone conversation while gesturing to another person at the same time. They walk relentlessly from one corner to the next, often calling out to one another. You see monitors with all these numbers and acronyms. They put in data on the terminals. What you actually see in your head is a stock exchange. A stock is basically shares in a business. A stock exchange is where stocks, bonds, or other securities are bought and sold. This is where stock brokers meet. The image we have conjured earlier, those are stock brokers.
But how does the stock market work?
First, you have to have a broker. You tell your broker to buy the shares you deem profitable in the market. Your order is then relayed to his floor clerk. He then finds another floor clerk who is willing to sell the shares you wanted. When a deal is arrived at, he relays it back to your broker and your broker relays it back to you and then you decide if the price is amenable to you. If it is, then a deal is set. This gives you a basic idea of what goes on in the stock market.
However, as we are now in the technology-driven world, stock trading are now available electronically. You must have heard of NASDAQ that engages in stock trading online. You no longer see those people in business suits, running across the room and doing about four things at the same time. In online stock trading, the system takes the place of your traditional broker and floor clerks.
The online stock trading markets use system networks to match buyers and sellers. So instead of calling up your broker to purchase an order for you, you merely have to log on to the system, place your bid and it will electronically match your bid with a willing buyer or seller, depending on what your position in the trade is. In some instances, online stock trading takes the market to a whole new level. This makes your transaction a whole lot faster.
Online stock trading gets rid of the meticulous situation of having to call your broker, your broker calls his floor clerk, the floor clerk looks for a client, they strike a deal, the floor clerk relays the message to your broker and your broker goes back to you and back to the whole process if an agreement is not met.
Since this whole process of going through at least three people is eliminated, online stock trading gets the job done faster. Many large company traders, such as pension funds, mutual funds and the like, actually choose this type of method over the traditional floor exchange. But how does this benefit you as an individual? As an individual investor, the main reward is that you frequently get on the spot feedback on your trades.
It effectively brings you one step closer to the stock market compared to when you only rely to your broker to give you the indices as you talk to him over the phone. However, as an individual you are still required to have a broker as individuals do not have access to trade on online markets. You need a licensed broker to access the exchange network. <