Stock Market

How Stocks Trade

When you first start out investing in stocks the actual mechanics of how stock trading works can seem very daunting, and any look at the floor of the New York Stock Exchange can make your head spin. Despite what may seem like chaos at first there is a systematic method for how stocks are traded, and it’s something that you can get a basic grasp on rather quickly.

The Stock Exchange

Virtually all stocks trade via a stock exchange, and nearly every country has their own stock exchange. The exchange can be a physical location, like the New York Stock Exchange (NYSE), where traders are literally on the floor of the exchange trading stocks, or it can be a virtual exchange like Nasdaq where all the trades take place online.

Primary Market

The primary market is where securities are created by the issuing company making its Initial Public Offering or IPO. On the primary market the stocks are bought directly from the issuing company, and it’s the only time the issuing company will be involved in the trading of stocks.

Secondary Market

This is the stock market that most people think about, and deal with on a daily basis. All of the stocks being traded on the secondary market have already created via the company’s IPO and the issuing company is no longer involved in the trading of their stocks on the secondary market.

Price

The price of a given stock at any given time on an exchange like the NYSE is determined using an auction type method, with the current price being the highest amount a buyer is willing to pay at any given moment.
On a virtual exchange like Nasdaq the price is set via markers referred to as the bid and ask price. The bid is how much investors are offering for a given security, while the ask is the price currently being requested for a given securityWhen you first start out investing in stocks the actual mechanics of how stock trading works can seem very daunting, and any look at the floor of the New York Stock Exchange can make your head spin. Despite what may seem like chaos at first there is a systematic method for how stocks are traded, and it’s something that you can get a basic grasp on rather quickly.

The Stock Exchange

Virtually all stocks trade via a stock exchange, and nearly every country has their own stock exchange. The exchange can be a physical location, like the New York Stock Exchange (NYSE), where traders are literally on the floor of the exchange trading stocks, or it can be a virtual exchange like Nasdaq where all the trades take place online.

Primary Market

The primary market is where securities are created by the issuing company making its Initial Public Offering or IPO. On the primary market the stocks are bought directly from the issuing company, and it’s the only time the issuing company will be involved in the trading of stocks.

Secondary Market

This is the stock market that most people think about, and deal with on a daily basis. All of the stocks being traded on the secondary market have already created via the company’s IPO and the issuing company is no longer involved in the trading of their stocks on the secondary market.

Price

The price of a given stock at any given time on an exchange like the NYSE is determined using an auction type method, with the current price being the highest amount a buyer is willing to pay at any given moment.
On a virtual exchange like Nasdaq the price is set via markers referred to as the bid and ask price. The bid is how much investors are offering for a given security, while the ask is the price currently being requested for a given security.