Stock Trading Explained

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For those who work on Wall Street, stock trading is an everyday occurrence. For many of the rest of us, it is an enigma. It just seems so complex, especially when you don’t have a clue what goes on behind the scenes.

Actually, stock trading isn’t terribly difficult to understand. Here are the basics.

How Stocks Are Traded

The actual trading of stocks takes place at a stock exchange. The most familiar stock exchange for most Americans is the New York Stock Exchange. This is the place that we often see on the financial report on the news. It is full of traders working to facilitate smooth, quick transactions between buyers and sellers.

But not every stock exchange operates like the New York Stock Exchange. Today, many stock exchanges are operated electronically. The NASDAQ is one such exchange. It utilizes a computer network to match stock sellers with buyers.

Stock Brokers

Not just anyone can access a stock exchange, electronic or otherwise. Only licensed stock brokers are allowed to interact with them. This helps ensure that all rules and laws are followed.

As with stock exchanges, stock brokers may be live or electronic. A traditional stock broker can provide a more personalized service, but this service comes at a price. Electronic brokers are designed to make trading faster, and they usually charge lower fees. Still, inexperienced stock traders often do better when working with a living, breathing stock broker.

Buying and Selling

When you choose a stock broker to work with, you must open an account with them. Most require a minimum deposit to get started. Once you’ve established your account, you’re ready to start buying stock.

It’s up to the investor to research any stock he is considering. Once he settles on a stock and decides how many shares he wants to buy, he contacts his stock broker. The broker places the order, deducting the stock price and a commission from the buyer’s account.

In order to turn a profit, the investor must watch his stocks and see when they gain value. When that occurs, he contacts his broker and lets him know that he is ready to sell. The broker once again sets up the transaction, deposits the profit into the investor’s account, and takes out his commission.

In order to make money trading stocks, it is best to make large trades. Brokers usually charge the same fees for small or large trades, so if you buy and sell in small amounts, the commissions will eat into your profits. If you plan to make small trades, an online broker may be a better option due to lower commissions.

The act of trading stocks is pretty simple. The hard part is deciding which stocks to buy and when to sell them for maximum profit. Trading is far from a guaranteed money-maker, so if you have a low tolerance for risk, putting your money into more stable investm
ents could be the way to go.

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