dividends growing

How Does the Stock Market Work

Getting start with Exchanges

So, now you have a general idea of what a stock is, why companies issue them and some of the basics of trading. Let’s move on to where to go to start trading stocks and get going with your own brokerage account! Stocks can be found on ‘exchanges’. This is where traders, both buyers and sellers come together to determine what price shares will be traded at. Some exchanges, such as the NYSE (New York Stock Exchange) are at a physical location while others, such as the Nasdaq, are electronic (or virtual) based. As exciting as it would be to be on the floor of the NYSE, screaming prices and running around making deals, I prefer the electronic version while sitting comfortably in my office. The entire reason for a stock market to exist is to aid in the trading of stocks (securities) worked out by the buyers and sellers. This way there is a risk reduction of the trading of the securities (stocks) by consolidating them into one place. Realistically, a stock market – either the NYSE or the Nasdaq – are a common meeting place for buyers and sellers to hook up to trade stocks. Let’s take a closer look at the different types of markets – these being ‘primary’ and ‘secondary’ markets. What is meant by a primary market is one that handles the initial offering of a stock or IPO (this is covered another blog post). A secondary market handles stocks which are not newly issued, these are the stocks that are truly in the ‘stock market’. At this point it is important to note that when you are trading stocks, you are not trading specifically with the company you are buying or selling, simply that you are working within a marketplace.

dividend-stocks (2)

A quick history of the major exchanges

NYSE | The New York Stock Exchange

This is probably the most famous of all exchanges, and has been around the longest in the professional sense. Sometimes called the ‘Big Board”, this exchange focuses only on a limited number of the most successful business in the United States. Companies such as 21st Century, Cigna, and Ford Motor Company. The NYSE is based on face-to-face trading, known as a listed exchange. This may seem like an old school way of doing things, but old habits are hard to break. They still employ ‘specialist’ who get the buyers and sellers together and place the orders at the trading posts. Now this is all great information, but not going to help you get started with your own trading because unless you want to fulfill a degree in financial management, we’ll stick online trading (you can still trade these stocks through your online broker… I recommend eTrade)

And in second place…. The Nasdaq

Really made famous by the fantastic technology boom of the late 90’s and early 2000’s, this is an ‘over-the-counter’ (OTC) market. This exists is a virtual market place (there are several others discussed later). All of the trading of securities is done electronically, congratulations on moving into the 21st century! Some of the stocks found on the Nasdaq include Kraft Foods, Intel, Sirius, Cisco, and Comcast. The difference in how stocks are traded on the Nasdaq (unregulated) as compared to the NYSE (regulated) is the Nasdaq depends on a ‘market maker’. This is a person who monitors and provides the ‘bid’ and ‘ask’ prices within a certain tolerance or ‘spread’ for the shares of companies they represent. This person gets the buyers and sellers together and keep a percentage of shares available in their market to ensure availability when traders come looking to make transaction.

And all the others:

There a bunch of other exchanges out there you can check out including a couple of the more notable ones being the the LSE (London Stock Exchange) or the HKSE (Hong Kong Stock Exchange) Now I don’t personally play in those markets, these would be considered FOREX (Foreign stock exchanges), but they can be extremely lucrative (more information on FOREX markets here) The stocks I mainly focus on are Penny Stocks… and why would I do that? Simple answer: a 30% gain is a 30% gain, whether the stock goes from .03 to .039 as it is if it goes from $30 to $39. The point: I can make a whole lot more trades for substantially less money and make the same gains! The risk: there is little to no regulation in these markets. The bottom line always comes down to getting trained and making educated decisions.   Take away: Get your own etrade account set up here Highly suggested: Get up to date tips on penny stocks here For those of you ready to REALLY get serious check out Autobinary trading Thanks for reading and taking action!

Posted by Judy Romero