How the Stock Market Operates by Kirk G. Meyer

Author:Kirk G. Meyer
Language: eng
Format: epub
Tags: investing, stock market, investing for beginners, investing basics, investing for dummies, understanding the stock markets, investments for anyone, buy stocks stock market, definition stock markets, explain stock market works, how the stock market operates, learn stock markets, learning stock market works, stock market began, stock market best investment, stock market encyclopedia, stock market fundamentals, stock market guides, stock market hours operation today, stock market operates, stock market operation, stock market over time, stock markets information, stock markets investing, stock markets works
Publisher: Kirk G Meyer
Published: 2020-07-13T00:00:00+00:00

The Basics of Investing

Thirty to 40 years ago, most financial decisions were fairly simple. – Scott Cook

In this chapter, we will examine some of the terms associated with investing and, at times, trading, but first, we will take a look at how stocks are indeed traded in the markets, how these trades are executed and finalized. After that, we will take a closer look at the types of trade orders that are used to buy and sell stocks when executing trades. This examination will include the three main types of trade orders used by the majority of people, the market order, limit orders, and stop-loss orders. Then, finally, we will take a brief look at the concept known as short selling, if this practice should be banned, and what, if any, benefits this practice may have in the markets.

Most of the people who are active in the markets do not comprehend what does go on behind the scenes in any stock market. In the markets, there are individuals who work diligently to ensure that shares of a company are available at all times to buyers. The reverse is also true; they work equally as diligent to ensure that there are shares that are made available to those who are buyers of a company’s shares. So, after the buyers and sellers are matched up by these behind-the-scene individuals, we need to make sure that the sale and transfer of ownership are completed, and that is done by a party that registers all of the owners of a particular company’s shares. However, if you are like me, you could care less about how the behind-the-scenes portion of the market works. However, it is something that you need to be aware of and understand how these things are accomplished if you get involved in the markets.

Once your trade is completed, it is said to be executed or that its execution has taken place. This process is achieved by one of four methods used by brokers, and they are as follows:

The first is the order may be sent to the stock exchange to be paired with a party that is seeking the opposite position as you are. So, if you are the seller, the exchange will locate a buyer for you, and the opposite is true as well.

The second method is your order may be sent to a market maker. A market maker is a company that is willing to buy or sell shares in multiples of one hundred shares. These companies will buy the shares at a slightly lower price than the market is at the time in order to turn around and sell them at market prices, enabling them to make a small profit.

Third, there is the electronic communications network (ECN) that will automatically match a buyer with a seller for a particular stock or some other financial instrument.

The final method is when a broker internalizes an order. This occurs when your broker’s firm has shares of stock in its own inventory

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