Stock is ownership in a company. Each share of stock represents a small piece of ownership. The more shares a person holds, the more part of the company he owns. The more part of the company a person owns translates to more dividends he earns when the company profits.
That is if the company pays dividends. Many do not these days as they want to use cash flow to build a bigger business rather than pay out cash to shareholders.
A stock market is a market for the trading of publicly held company stock as well as associated financial instruments such as stock options and stock index futures. On the other hand, stock market trading is the buying or selling of securities specifically in the stock market, usually on stock market exchanges, like the New York Stock Exchange.
There are two basic methods of doing stock market trading. Traditionally, stock markets where open-outcry where trading happened on the stock exchange floor. The more modern way of doing stock trading is through electronic exchanges where everything occurs online real-time.
Stock market trading via the exchange floor could not look any more chaotic. When the stock market is open, hundreds of people are seen rushing about, shouting and gesturing to each another on the exchange floor. Traders are also often seen talking on phones, keeping a close eye on the consoles and entering data into terminals.
Online stock market trading moves the trading off the floors and more into the networks. The electronic market employs a vast network of computers to match buyers and sellers instead of human brokers. While lacking the excitement of the usual stock market exchange floor, it is faster and more efficient. Investors frequently get an almost instant confirmation on any trades done.
How does stock market trading work? Be it on the chaotic stock market exchange floor or electronically, one needs to get an investment broker first.
For traditional exchange floor trading, after asking a broker to buy a certain number of shares at the market, the broker's order department sends this order to the clerk on the floor. The clerk alerts a trader who finds another trader who is willing to sell the shares the investor requested.
The two traders agree on a price for the stocks and close the deal. Notification is sent back the same way until the broker calls the investor to inform him of the final price. This process may take a while depending on the market and stocks. Days later, the investor receives the confirmation by snail mail. This process is so yesterday.
The electronic counterpart is less complicated because the stock buying and selling are matched by the computers in real-time. And the investors get instant updates on the price action and profits or losses for their stock trades.
With so many discount brokerage firms operating on the Internet trading stocks is easier than ever. An investor and stock trader can easily and inexpensively trade stocks from his home or office computer.
That's why it is more important than ever to be disciplined in one's approach to stock investments. These days it is so easy to buy and to sell stocks online that it is easy to over do it. Few traders will make money by constantly churning their own accounts.
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