The Basics of Trading Stocks

Stock trading is the process of buying and selling stocks. This process requires the assistance of a broker to handle the actual sale. When a person buys stock in a company, they are able to make a profit if the price of the stock increases. They may also earn money in the form of dividends if the company does well financially. However, not all companies pay dividends on their stocks.

Trading in the stock market is done in two ways. Some trading is done on the floor of the stock market exchange, and some is done electronically using computers.

Stock Exchange Floor Trading

When you see the floor of the New York Stock Exchange portrayed on television, all you see is chaos. There is really a system to the chaos, though. First, a broker receives an order to buy a certain number of shares of a stock. Then the order is relayed to the broker's floor clerk, who is on the exchange floor. The floor clerk notifies the company's traders, who look for traders who want to sell the shares that they need to buy. A price is negotiated, and the deal is closed.

Electronic Trading

Electronic stock trading uses complex computer systems to handle the stock orders instead of relying on traders to negotiate purchases of stock on the exchange floor. The NASDAQ exchange uses electronic trading. This results in faster and easier trading of shares.

Stock trades that are done electronically through NASDAQ still require the assistance of a broker because the system cannot be accessed directly by individuals. As an individual investor, the behind the scenes trading remains hidden, so you may not be aware of what process your broker goes through to handle your trades. In exchange for the work he does taking care of your stock market investing transactions, the broker receives a commission from each trade. If you are buying stocks for the first time, you'll want to compare the fees charged by various brokers before choosing one to handle your investments.

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