Stock Market Trading And Exchanges
Traditionally, stock market transactions are done in trading houses generally called stock exchanges. These are the places where buyers and sellers of stocks meet and do business on expansive trading floors.
The original intent of a stock market is to facilitate trading between buyers and sellers in one place to reduce risks. Simply put, the stock market is nothing more than a sophisticated farmer’s market of buyers and sellers doing their business.
Traditional exchange floors
Like any other market place, people in these sites could become agitated and noisy and just plain excited with the prospects of earning money.
Sometimes, you can see glimpses of these transactions in news reports – traders talking on two-way radios or telephones, waving and yelling, and furiously sending signals with the other traders on the floor.
Virtual stock exchanges
Lately, with the advent of the computer and the development of the internet, another type of stock market exchanges came into existence. These are the virtual stock market exchanges, usually a network connected by computers where the trading is transacted electronically.
The stock market has two distinct types of market – the primary and the secondary market.
The primary market is the place where securities are created by means of IPO (initial public offering). The secondary market is where investors trade previously-issued stocks without the participation of the issuing owner-companies.
This is the market we all know (and see) today at the stock market exchange floors. (In the stock market business, the company need not take part in the trading of its stocks.)
The New York Stock Exchange is the most prestigious in the world. It was founded more than 200 years ago in New York City by the original 24 stockbrokers and merchants.
With companies like Wal-Mart, General Electric, Coca-cola, McDonald’s, Citigroup, and Gillette among others in its rosters, the NYSE is the market of choice for the biggest U.S. companies.
In NYSE, the first type of exchange was done on the trading floor on a man-to-man basis. From the brokerage firms, orders go down to the brokers who transact business at the trading post where buyers and sellers are matched.
The prices are determined using the auction method – the current price is the highest amount the buyer is willing to pay, and the lowest price someone is selling. As soon as a trade is completed, the deal is sent to the investor who placed the order via the broker.
The new and 2nd type of exchange is the virtual kind called an over-the-counter (OTC) market, led by the very popular NASDAQ. These markets do not own central locations or floor brokers. Trading is completed through a computer-and-telecommunications network of dealers.
The tech boom of the 90s made NASDAQ a serious NYSE competitor today. Now, the NASDAQ is home to many of the largest technology companies (Microsoft, Oracle, Cisco, Dell, Intel and others).
All the major cities and business hubs around the world have their own exchanges and trading houses. Some are still doing traditional man-to-man transactions while others are into the modern high-tech models of selling and buying stocks.
Whatever trading models are used (traditional or high-tech), the stock market is here to stay.
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