Electronic Trading vs. Stock Exchange Trading Floor
Stock trading includes the execution of both buying and selling activities. It is not a one-side process. Instead it requires a buyer of a stock and a seller who should offer the particular stock.
It can be said that financial markets' existence will be almost impossible without the availability of the sophisticated technologies. This statement is supported by the fact that without the sophisticated systems in place the billions of shares that are traded each day would hardly take place.
Financial markets are flooded with many technical terms. You don't have to be an expert in all of them. However, you should have a basic understanding of the functions and processes of the financial markets in order to become a proficient investor or trader.
Ways to Execute a Trade
Stock exchanges implement one of the following ways in order to execute a trade:
- Electronic trading
- On the exchange trading floor
The trend is toward the transference of trade execution to the networks. However, as with every new thing, resistance on the part of some investors is met, who prefer the traditional on the trading floor way. An example of successful electronic stock trade is NASDAQ, which executes stock trading online.
Electronic Stock Trading
As it was mentioned above NASDAQ executes stock trading entirely online. And this is the most normal thing that can happen having in mind the wide use of electronic networks and the vast amounts of transactions that should be done.
Compared to the NYSE, which performs only a small percentage of stock trades electronically, NASDAQ uses computer networks to match buyers and sellers. These have substituted the broker intervention observed in the NYSE. Electronic markets provide a more efficient and faster way to execute trades. It has become the preferred method by large institutional traders. Pension funds, mutual fund and many others have substituted the on floor exchanges for the electronic markets taking advantage of their relative convenience.
Electronic exchanges provide many conveniences to individual traders as well. For instance you are given the opportunity to receive instant confirmation of the trades you have performed. It also nears you closer to the market since it provides you with real time interaction.
On the other hand, if you are an individual investor, you will still need the services of a broker. This is required since as an individual investor you are not allowed access to the electronic markets. Once you have posted an order, the broker accesses the exchange system, which in turn finds a buyer or a seller.
Stock Exchange Trading Floor
Generally, people picture stock exchange as a big place, which with the beginning of the trading day is filled with brokers who shout over one another different numbers and words accompanied by gestures. The atmosphere is further enhanced by the various technologies, such as monitors, complex graphs, terminals and phones ringing from every direction.
This is also true to a great extent for the NYSE (the New York Stock Exchange). What is left at the end of the trading day are many transactions. However, with the beginning of the next trading day everything starts from a scratch.
How exactly on the floor stock trade is executed?
First of all, the investor instructs his/her broker to purchase a certain amount of shares of a particular company. After receiving the order, the order department of the broker transfers the order to the floor clerk, who is on the exchange.
The floor clerk in turn contacts one of the firm's floor traders. The latter finds another floor trader who is willing and able to sell the shares the investor has ordered. The process is simple since floor traders are familiar with the floor traders that make markets for the specific stocks.
A negotiation follows between the two regarding the price of the shares. After they reach an agreement the trade is completed. The notification turns back the same channel until it reaches the investor's broker, who in turn notifies him/her about the final price.
The whole process takes up to few minutes. It all depends on the stock the investor has selected and the market itself. A confirmation notice is received in several days, which verifies the executed trade.
No matter which way of stock trading you choose it is good to know how it works in case something wrong happens. In this way you will have the knowledge on where to search for the obstacle.
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