Methods of Stock Trading
There are two basic ways exchanges carry out a trade:
- On the exchange floor
- Electronically
Exchange floor
Trading on the floor of the
Yet, at the end of the day, the markets workout all the trades and get ready for the next day. Here is a step-by-step walk through the execution of a simple trade on the NYSE.
- You tell your broker to buy 1000 shares of peak Kumquats at market.
- Your broker’s order department sends the order to their floor clerk on the exchange.
- The floor clerk alerts one of the firm’s floor traders who find another floor trader willing to sell 100 shares of peak Kumquats. This is easier than is sounds, because the floor trader knows which floor traders make markets in particular stocks.
- The two agree on a price and complete the deal. The notification process goes back up the line and your broker calls you back with the final price. The process may take a few minutes or longer depending on the stock and the market. A few days later, you will receive the confirmation notice in the mail.
Of course, this example was a simple trade, complex trades and large blocks of stocks involve considerable more detail.
Electronically
In this fast moving world, some are wondering how long a human-based system like the NYSE can continue to provide the level of service essential. The NYSE handles a small percentage of its volume electronically, while the rival NASDAQ is completely electronic.