Trading in the Stock Market: An Overview
Trading and selling commodities has existed since time immemorial. It is big reason why kingdoms and empires flourished during the early ages. Those with good trading and exchanging markets, and well known routes were always one step ahead of other empires. This is applicable even in the modern day and age; where trading and selling of stocks and securities form the backbone of the economy. Stocks or securities are a very small part of a public or private company made available for purchase to the general public. Traders and sellers of these commodities are called stockbrokers. The financial institution that employs these professionals is referred to as a brokerage firm.
Stock markets are places where shares and securities are bought and sold in huge quantities. Roughly it can be described as an aggregation of a loose network of economic transactions of stocks and shares. Trading may sound and seem simple enough, but in fact it is the latter.
Trading in stock markets means a transfer of money from a buyer to a seller of stocks, in which both parties are in agreement. Having equity (multiple stocks or shares) indicates an ownership interest in a company. Participants in a stock market range from small individual stock investors to large trading investors. They can be based anywhere in the world, and include big corporations and entities like banks, pension funds, insurance companies and hedge funds. Buy and sell orders placed by these entities can be processed via a stock exchange trader.
Certain exchanges are physical locations where trading is done by a method called open outcry. This method is used in some stock and commodities exchange, where traders shout out bid and offer prices. Some are places where trades are made electronically on computers; an example of such an exchange would be NASDAQ.
The process involved is rather simple, a bidder bids a specific price for a stock, and a seller tries to sell a stock at a certain price, when the bid and ask price match, the sale goes through. Most sales happen on a first come first serve basis if there are multiple bidders and askers at a same price point.
A stock market provides a real time check on prices and sales of stocks, this a conjuncture which facilitates exchange between buyers and sellers, thus creating a marketplace. There are many hybrid stock markets such as the NYSE in New York and the BSE in Mumbai, where both on the floor trading and electronic trading take place simultaneously. People prefer trading on the popular markets as it is a place where a large number of counterparties (buyers for sellers and vice versa) at the best possible price. Independent stock markets also exist where it is free from the commission of the big stock exchanges but there is a problem of adverse selection in such places.
Many discount brokers offer low brokerage for new investors looking to put in some capital. Lucrative schemes such as this entice more people to foray into stock markets and stock trading.