Online Stock Trading

Understanding The Stock Market

Online stock trading requires just a basic understanding of the stock market. The US stock market is one of the most important places for companies to raise money. In an initial public offering the company issues shares to the public. These shares can be bought and sold on the stock market trough online stock trading. If you buy shares then you become a part owner of the company. If the company prospers, then the value of your share will increase, the share price will go up. If the company fails or even goes bankrupt, then the share price will decrease and even go worthless. As a shareholder your liability is limited to the share price you have paid.

Understanding of the many factors which have influence on the stock market prices is crucial. During online stock market trading the stock price is always in fluctuation, even if the fundamental data of the company have not changed. Stocks are traded on stock exchanges, places where buyers and sellers meet to exchange shares at agreed prices. In the United States there are various online stock exchanges like the New York Stock Exchange or also called NYSE or Wall Street, the NASDAQ or the American Stock Exchange (AMEX).

The New York Stock Exchange is a physical exchange. That means that the stock trading is done between human dealers, also called specialists. The understanding between these persons goes by hand signs and shouting. A specialist is responsible for a particular stock. All buy and sell orders from all over the world for IBM shares for example come together at a special place on the trading floor, the trading post, where specialist matches these orders.

When you wish to buy IBM at $100 (bid price) and somebody else wants to sell IBM at $100 (ask price) then the specialist matches these orders and the sale takes place. That doesn't mean there is no online stock market trading broker. You still can place your order through an online stock market trading broker but at the end of the line your order gets filled by the specialist by hand more or less.

The best online stock trading is possible on the NASDAQ market. The NASDAQ is a virtual online exchange which means that there is no human interaction when orders are matched. Order matching is done 100% automatically. There are no specialists but market makers who must provide a valid and current bid and ask quote for their stocks at all time.

When you buy or sell stocks you can't do that directly at the stock exchange. In online stock trading all orders have to go through a broker who acts as intermediary between the stock exchange and the investor. To buy or sell securities you contact your broker who for his part will forward your order for execution to the exchange. If the sale/buy was done, the exchange reports the fill back to the broker who will forward the order execution notice to you. While this procedure sounds complicated and time consuming, in todays high-tech world the whole process may take less than a second at fully automated exchanges or about 1-2 minutes at other exchanges like the NYSE.

The broker is an important part of the trading as he makes sure that all orders are transmitted properly and you don't have to care about the details. The broker will handle all requests and assist you. Full service broker provide wide range of services like investment advice, market and stock analysis and commentary and personal assistance. Discount stock brokers offer order online execution services only to experienced traders who don't need further advice.

When you start trading at the stock market it is good to maintain a healthy lifestyle. Stock trading online means big stress for your body and mind. Our emotions are our biggest enemy in stock trading. Understanding the stock market is one thing. If you are not fit enough you will loose.