Before you learn how to start trading stock, we must look at the concept of the stock exchange. The stock market is in existence to enable buyers and seller to interact, a stock exchange is simply somewhere people can go to buy and sell shares of companies.
Learn About The Various Exchanges
There are two main types of exchange, these are the physical exchange where there is a trading floor such as the New York Stock Exchange and the virtual stock exchange where buying and selling of stocks is done on computers such as the DASDAQ.
In more detail a physical exchange is an open trading floor where the trading of stocks takes place through the open outcry system. This is the system commonly shown in films and on TV where you often see people waving their arms frantically and talking on phones.
The best example of this system is of course the New York Stock Exchange but there are other big exchanges that operate on the same system to be found in London and Hong Kong, as well as on other exchanges the world over.
The people you see waving their arms and talking on the phone are floor are stock brokers who represent a brokerage that is located elsewhere. The job of the floor broker is to match a buyer to a seller, and the price at which the transaction occurs is determined by the auction. This is the highest price someone is willing to buy a stock for at and the lowest price someone is prepared to sell the stock for.
The virtual exchange as I have said before is an exchange where to trade takes place on computers and this is what most people think of of when learning how to trade stocks. The most popular virtual exchange is the NASDQ where trading is conducted through a computer network allowing communication to the dealers. Transactions on the NASDAQ are carried out via brokerages who make the market.
A stock broker’s job is to continually bid and ask for prices that fall within a prescribed percentage of the shares that they have been designated to trade in. During this process they often match buyers with sellers, or they may also maintain an inventory of shares for their investors.
Primary And Secondary Markets
Those learning how to trade stocks also need to be familiar with the primary and secondary market and be able to differentiate between the two. The primary market is for the sale of fresh shares newly created by a company through the IPO’s, or Initial Public Offerings.
The secondary market therefore is for the trade of pre sold shares, i.e. shares of companies that have already been issued and bought by an investor previously. These shares can be traded without the issuing company having any involvement what so ever.
When people speak of the stock market they are talking about the secondary market and not the primary market.
When learning how to start trading stocks, it is important to pay close attention to what broker you are using, as fees, commissions, and features can vary widely from broker to broker. Many brokerages offer research tools and stock screeners, as well as personalized investment advisors.
Look for a broker with comprehensive stock research tools that suit your personal needs and investment objectives, as well as low commissions and fees which can cut into your capital.