| How a system that can facilitate one billion shares | | | | and selling of a certain stock, pair bids and asks |
| trading in a single day works is a mystery to me, so | | | | together to streamline the process and keep the |
| I thought I’d do a little digging and see if I could | | | | spread small, but positive. |
| come up with the general process on how stock | | | | Considering that the bid and ask prices are always |
| trading works. Here is what I found. | | | | changing, you need to be careful about your sales |
| The purpose of a stock market is to facilitate the | | | | and purchases. The price that is quoted may or may |
| exchange of securities between buyers and sellers, | | | | not be the price at which you actually buy or sell the |
| reducing the risks of investing. Just imagine how | | | | stock. There are several options regarding the |
| complicated it could become to sell shares if you had | | | | method of execution for your trades: |
| to search for someone who wanted to buy your | | | | Market Orders: an order to buy or sell stocks at the |
| stock. | | | | prevailing market price. These are often the |
| When it comes to trading stocks, it’s not trading | | | | lowest-commission trades because they involve very |
| in the typical sense of the word, where I give you | | | | little work on the broker's part. |
| this, if you give me that. Trading on the stock | | | | Limit Order: You tell your broker to buy a security at |
| market is more a matter of buying and selling, these | | | | or below a specified price, or to sell a security at or |
| two components are what make up | | | | above a specified price. This ensures that you will |
| ‘trading’ when it comes to investing in the | | | | never pay more for the stock than whatever price |
| stock market. As opposed to something like retail | | | | you set as your "limit." |
| shopping where the prices are set by the seller and | | | | Stop Order: You tell your broker to buy a security at |
| you can just walk into a store and purchase | | | | the market price once it reaches a level higher than |
| something, the stock market functions more like an | | | | the current market price. The opposite would be true |
| auction in which both buyers and sellers are actively | | | | if you were selling: you would tell your broker to sell |
| setting the prices at the same time. | | | | your security once it reaches a level below the |
| With both buyers and sellers actively setting the | | | | current market price. A market order to buy or sell a |
| prices in the stock market, it is only logical that there | | | | certain quantity of a certain security if a specified |
| are subsequently two prices associated with every | | | | price (the stop price) is reached or passed. |
| stock, the bid price and the ask price. The bid price is | | | | Day Order: You tell your broker to execute the trade |
| the price at which buyers are willing to buy the | | | | by the end of the day; otherwise, he or she does |
| security whereas the ask price is the price at which | | | | not fill the order. |
| sellers say they will sell the security. These two | | | | All or None: an order type for a broker to execute a |
| prices are pretty much never the same: generally, | | | | trade only if every share of an order can be filled in |
| the bid is slightly below the ask. The difference | | | | its entirety, or else not at all. |
| between the two is called the spread, the amount | | | | Fill or Kill: You tell your broker to execute the trade |
| that is taken by your broker as profit. Specialists, | | | | immediately; if the trade is not filled right away then |
| who are in charge of the coordination of the buying | | | | your broker does not execute the order. |