Trading in stocks is a common term that most people have heard of but do not understand. To invest in the stock market, you have to be intentional in educating yourself if you want to excel.
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There are terms that are used in this trade and if they not properly understood, you will have a hard time navigating the stock market. Learning such terms is one of the easiest ways to forge your way forward in this trade.
Such terms include:
- Trade = Buy or sell – In the financial markets, “To trade” means either to buy or sell. You don’t have to understand every technical detail of buying and selling stocks but you can have just a basic understanding of how the markets work. Hiring a stockbroker helps you get more trading experience from an experienced expert who will trade on your behalf at an agreed upon fee.
There are two basic ways that trade is executed. These are on the exchange floor and electronically. You need to understand how each of these works well before you decide to invest in stocks.
- Exchange floor trade – This is the kind of trading that happens on the floor of any licensed stock exchange floor. When the market is open, hundreds of people rush to the floor, shouting, gesturing, talking on phones, watching monitors and keying in data into their terminals. To a normal eye, it looks chaotic more than beneficial but only the brokers can tell you what they achieve from this open floor trading. At the end of each trading day, calm returns but it can take some time before a trade is settled between the parties involved. These are some simple steps on what happens on the floor.
- You tell your broker to buy a certain number of shares from a well to do company.
- Your broker sends the order to the floor clerk on the exchange.
- The floor clerk alerts one of the floor traders who alerts another floor trader willing to sell 100 shares of the said company. It becomes easier because the floor trader knows which floor trader trades such stocks.
- The two agree on a price and seal the deal. The notification cycle goes back up the line and your broker calls you back with the final price. It simply takes your affirmation to seal the deal completely. The process may take a few minutes or longer depending on the stock market.
This is a simple step example, there could be more complex trading that might not be resolved easily.
- Electronic trades – This market uses vast computer networks to match buyers and sellers without having physical brokerage ground. This process is efficient and fast, with many large organizations using it. You will still need a broker to handle your trades because individuals don’t have access to this electronic market.
