Stock trading

Stock trading might be a big mystery to people, even for someone who has been investing their money in the stock market for quite awhile. Regular people do not handle the actual trading of the stock, their brokers and other financial people handle the actual trading. But even though an investor does not handle the actual trading process they should be the main decision maker when it comes to deciding whether or not they should trade their stock. This article offers information about how stock trading is done and when an investor should trade their stock.

What is trading

Trading stocks actually means to buy and sell stocks. "Trading" is pretty much just a slang word that people use in the financial market for buying and selling stock.

How to trade stock

There are two different ways that stocks are traded. The two basic trading methods of stock trading are done electronically or on the exchange floor. NASDAQ trading is done electronically and NYSE is done on the exchange floor.

Electronically

NASDAQ is the stock market which is entirely electronic. When trading is done electronically many computer networks work to match different stock buyers and sellers instead of using human brokers like the exchange floor. This type of trading is not quite as exciting but is much more efficient and definitely quicker.

Electronic stock trading still requires a broker to handle an investor's trades since a regular investor does not have access to electronic markets. A person's broker will access the electronic exchange network and the actual system will find a seller or a buyer for the investor. An investor is able to receive confirmation about their trades very quickly when they use the electronic market.

Exchange floor

Trading on the exchange floor is done at the New York Stock Exchange. When someone sees how this is done it looks like a lot of disorder and confusion. Many people are running around, yelling, watching different monitors, entering information, and talking on phones. When an investor tells their broker that they would like to buy a certain amount of shares from a particular company the broker's order department sends the investor's order to their floor clerk who is working at the exchange.

Next the floor clerk tells one of the firm's floor traders and they find a different floor trader who is willing to sell them the specific amount of shares the original investor wants to purchase. The floor traders know which other floor traders work with specific stocks, so the process is not quite as confusing as it may sound. After the two floor traders agree on a specific price they make the deal. Then the process reverses and after a short or long while (depending on the stock and the stock market) the investor will hear back from their broker.

There are other examples of stock trading that are much more complicated than this example but this offers an investor a very good idea of what happens when they are trading stock.

When to trade stock

An investor should remember the rule to buy their stocks low and sell them high. This means that a person should sell their stock when it is high because they will make the most money on the stock. A person should buy their stock when it is low so that they spend as little money as possible on their investments so that they will lose less money if the company fails and make more money if the company does well.

No one ever really knows for sure when they should trade their stock. If the price is high they could sell the stock and then it could go higher. It is also possible that the price might drop soon after and the investor made a great move by selling. Some investors sell when the price drops, hoping to limit the amount of money their will lose. This can be a good move if the price continues to go down, but the price could go back up and then trading would have been a bad decision.