Trading on the stock market is something that you hear about everyday. The news in the evening each night tells us how much the market closed at. The middle pages of news papers are covered in stock prices and you can't avoid the stories of another lucky investor who just became the latest millionaire from making it big in these markets.
But what is the stock market? Hopefully with a better understanding of how it works you too, might be able to make some profit.
There is no single definition for the 'stock market', but basically it is a market that facilitates the trading of stocks. The worldwide size of these open marketplaces is estimated to be around $22.5 trillion. Some of the most famous stock markets around the world are the NYSE, NASDAQ, Euronext, and the London Stock Exchange.
Investors in stocks range from some casual traders who trade as a hobby to large hedge fund traders. Almost all orders for the buying or selling of these equities go through a professional at the exchange; however the way these financial instruments are trading is changing rapidly as a result of the internet.
Trades on the stock markets are similar to that of auctions. This works by sellers asking for a specific price and buyers bidding a specific price for a stock. When the bid and ask price match there is the potential for trade to take place. The sales take place on a first come first served basis.
Trading can take place in two ways. One form of is the traditional outcry method. This is where buyers and sellers meet on the trading floor and decide on a price. Verbal bid are made by buyers and sellers simultaneously. The other form of trading takes place electronically, this form of trading takes place over a network of computers and trading s made electronically by traders at a computer terminal.
Without the existence of the stock market, trading on the stock market would be very difficult. The markets would also be very inefficient. Buyers and sellers would have a much harder time reaching an optimal trading price. It would also be very difficult for traders to find stocks that they wanted to invest in.
Trading stocks in a marketplace kind of format can be traced to 12th century France when traders were concerned with regulating the debts of agricultural communities.
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