How Stock Market Trading Happens

How Stock Market Trading Happens

The stock market has puzzled many people over the years with its behavior. Not many so called analysts have been able to make predictions that are always right and that is because price movement of stocks are dependent on a variety of factors like political developments, economic news, company performance of the stock, influence of foreign institutional buying and so on. In short, it is just another market that behaves as per the demand and supply existing at a particular point in time. It can be compared to a big super mall where people are either buying or selling stocks. For every buyer, there is a seller and vice versa.

This transaction of buying and selling of stocks is facilitated by a stock exchange. The New York Stock Exchange is one such example. As compared to earlier times, when you had to be physically present at the exchange to trade stocks, modern trading is done through online trading portals that are owned by brokers and many people have been able to do so from the comfort of their homes.

Let us look at one example of how a stock trade happens.

You first need to open a trading account with a broker and also a deposit amount with which you can trade in a specific quantity of shares depending on the price of the stock you wish to trade in. You then place an order to buy a particular stock at a particular price and the quantity could be say 100. The trading platform will communicate to all networks that somebody wants to buy 100 shares of a particular company and this immediately results in an interested seller of that stock to make available 100 shares at the price you wanted and the transaction is done online. Hundred shares get transferred from the seller’s account to your account.

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Several such trades keep happening through the working hours of the stock exchange on a daily basis and the relevant brokerage fee; taxes to the government and so on are all adjusted online in the trade that is executed.

Now the decision of what stock to buy is based on valuation of the stock and that is determined by the profits the company is generating, the future potential of the company or the industry and the time the buyer is willing to remain invested in that stock. Those are aspects that merit discussion separately.