Stock Trading

By: Kent Pinkerton

In simple terms, stock is a share in the ownership of a company representing a claim on the company's assets and earnings. The more the stock you acquire, the greater your ownership stake in the company.

Stocks are mostly traded on exchanges in two basic ways: on the floor of the exchange or electronically. The trading floor of an exchange resembles a picture of apparent chaos, with traders yelling, waving, talking on the phone, and sending wild signals to each other. The exchange where trade is executed electronically involves a network of computers.

A stock market that helps the exchange of shares between buyers and sellers is of two types: primary and secondary. In the primary market, securities are created by means of an "Initial Public Offering (IPO)," i.e., the first sale of a stock, which is issued by the private company itself. On the other hand, in the secondary market, investors trade previously-issued securities without the involvement of the issuing companies. It is the secondary market that people refer to when they talk about "the stock market."

The New York Stock Exchange (NYSE) is the most prestigious exchange in the world. Also known as a "listed" exchange, much of the trading in the NYSE is done face-to-face on a trading floor. Here orders come in through member brokers and flow down to floor brokers who go to a specific spot on the floor where the stock is traded. At this "trading post," there is a "specialist" who matches buyers and sellers. Prices are determined through auction. Mind you, the human contact notwithstanding, computers do play a big role in the NYSE.

The NASDAQ is the second type of exchange, where trading is done through a computer and telecommunications network of dealers with no central location or floor brokers whatsoever. It is now home to many big technology companies, posing a serious challenge to the NYSE. There are several big stock exchanges operating in different parts of the world.

Trading
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