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Stock Trading

What is a Stock Exchange

It is a secondary market, where existing owners of shares can transact with potential buyers. It is important to know that the companies listed on stock markets don't buy and sell their own shares on a daily basis. Some of the well-known stock exchanges in India are the National Stock Exchange of India (NSE) and the Bombay Stock Exchange of India (BSE). Some globally known exchanges are the New York Stock Exchange (NYSE) and NASDAQ.

What is Stock Trading?

Stock Trading is a method of buying or selling shares of a company if you own stocks of that company. Before interpreting what that means, let us understand what exactly stocks are. Stocks are financial instruments that represent one's ownership of a company. The tricky part of investing in stocks is that stocks don’t guarantee you money; the money that you earn through stocks is by trading and that’s why it’s so important to understand stock trading or at least how it works.

There is a common misconception that stock trading is like gambling, but that’s a myth. Stock Trading is a very interesting and beautiful form of trading. It is a huge part of the finance world with millions of traders trading stocks and working around the globe 24 hours a day. So let us understand exactly how this trading happens.

How does stock trading work? 

The way it works is that you place an order with your stockbroker and they send your request to a stock exchange to see what the best price is. The price that buyers are willing to pay is called the bid price. The price that sellers are wanting to sell at is called the asking price. 

What is an order? 

An order is an instruction to buy or sell on a trading venue like a stock exchange. These instructions may be simple or complicated. They may be sent to either a broker or to a trading venue via direct market access

There are many types of orders, such as:

  • Market Order :

This is the simplest variety of order. It’s basically an instruction to your broker to execute a buy or a sell immediately at market prices. The market prices can be anything but you're instructing your broker to buy or sell. Depending on whether you're a buyer or a seller and as long as there are other willing buyers or sellers of the stock, you can acquire or get rid of your stocks. Your order should be quickly administered. Your buys will always be executed at the best ask price and your sales are going to be executed at the best bid price.

  • Limit Order:

When you place a limit order, you're essentially asking your broker to buy a stock or sell a stock at no more than or less than the specified price that you set. For example, you simply want to buy shares of Southwest Airlines at a price of $50 when it's currently trading at $55. You would place a limit buy order for $50 which should get filled if the worth drops right down to $50 or lower. Once you buy the shares, you may want to put a limit sell at $60. That should fill if and when the worth gets to $60 or higher. 

Stock Trading is often interpreted as a complex topic that is difficult to understand. However, on the contrary, it’s quite simple. Understanding Stock Trading can help you understand your investments and make better choices while buying and selling stocks and help you earn some good money. 

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