Login

Monday, October 20th, 2014


Follow Us

How a Stock Market Works

The stock market might seem mysterious, but its inner workings are no big secret. Have you ever attended an auction? When you buy an object at auction, you aren’t buying from the auctioneer. It’s the auctioneer’s job to match buyers with sellers, and to get the best price possible for the seller.

Since there’s no fixed price for any auction item, the selling price is set by the amount that a buyer is willing to pay. The stock market works in a somewhat similar fashion. It’s an auction-based market, with intermediaries who match buyers and sellers of stocks.

Once a stock has gone public, its shares are bought and sold on organized stock markets. The largest public stock market is the New York Stock Exchange, also known as “the Big Board.” The NYSE is home to many of the largest and best-known American companies, and is probably what you picture when you think about a “stock market” – lots of people running around in funny-colored jackets, gesticulating wildly with their hands, scribbling orders on notepads. These are the specialists, and it’s their job to match buyers and sellers of a particular stock.

Behind the frenzied spectacle is a methodical and organized system of trading, in which the price of any stock is set purely by rule of supply and demand in an auction setting. Specialists help match buyers and sellers, but shares are always sold to the highest bidder.

Every day, you can tune in to your TV to see reports from the floor of the New York Stock Exchange, or to see the ringing of the bell to signal the beginning and end of the trading day. But the NYSE isn’t the only market for stocks. The American Stock Exchange operates in a similar fashion, and there are many smaller regional stock exchanges, such as the Pacific in Los Angeles, the Philadelphia, the Boston, the Cincinnati, and the Chicago. Some small companies are listed only on a regional exchange, while some NYSE and AMEX companies are listed on these smaller exchanges, as well, for greater exposure to investors.

The Nasdaq stock market differs from the Amex and the NYSE in that it’s a completely electronic system. All trades for Nasdaq stocks are done via an extensive computerized network between geographically dispersed investment banks and brokerage firms. Some serve as market makers for Nasdaq-listed stocks, maintaining inventories of selected stocks so that investors can always find shares to buy or sell. (The NYSE and the Amex are also both putting technology to work in matching trades electronically, bypassing the human specialists.)

Fortunately for you, all of this activity goes on behind the scenes. All you have to do is log in to your ShareBuilder account, and click the Buy or Sell button to make a trade. All of these markets operate under sophisticated rules that are designed to protect investors, but they share a single objective – to allow investors to get the best possible prices on shares of stock, whether they’re buying or selling.

Stock Market Basics for Young Investors
Invest in What? Stocks vs. Index Shares
Learn These Key Stock Terms

This entry was posted in Investing Basics. Bookmark the permalink.

13 Responses to How a Stock Market Works

  1. PWess says:

    If stock prices are determined purely by supply and demand, how come stock markets in Australia can open weaker when the Dow has dropped – and before any trading has commenced that day ?

  2. thank you buddy says:

    Thanq very much dude.

  3. PWilliam says:

    Very Helpful

  4. Mr. Anonymous says:

    outstanding article!

  5. gbart8717 says:

    Although your article did not state anything I did not already know, I thank you for it.

  6. www.sharetipsinfo.com says:

    Hi,

    Indian stock market is one of the most volatile market. Its two main stock exchanges are <a href=”http://sharetipsinfo.com” title=”NSE”>NSE</a>and BSE. Both exchanges generally follow same trend.

    NSE and BSE offers platform for investment in Indian stock market. In India there are many traders who prefer NSE over <a href=”http://sharetipsinfo.com” title=”BSE”>BSE</a> as they consider BSE
    as more volatile exchange but truth is that all exchanges be it NSE, BSE or LSE are volatile and should not be considered as a place for speculation.
    One should strictly follow technical analyses if they want to earn regularly from any stock market.

    Please remember analyses of stock market be it technical or fundamental do help!!

    Regards
    <a href=”http://sharetipsinfo.com” title=”SHARETIPSINFO TEAM”>SHARETIPSINFO TEAM</a>

  7. sharetipsinfo says:

    Hi,

    Indian stock market is one of the most volatile market. Its two main stock exchanges sharetipsinfo.com. Both exchanges generally follow same trend.

    NSE and BSE offers platform for investment in Indian stock market. In India there are many traders who prefer NSE over BSE as they consider BSE
    as more volatile exchange but truth is that all exchanges be it NSE, BSE or LSE are volatile and should not be considered as a place for speculation.
    One should strictly follow technical analyses if they want to earn regularly from any stock market.

    Please remember analyses of stock market be it technical or fundamental do help!!

    Regards
    SHARETIPSINFO TEAM

  8. insightstock says:

    Hello,This blog is really nice and informative.We are pleased to know this blog is really helping people. Its our pleasure to post informative content on this useful blog
    created by webmaster. http://www.insighttechnical.com is India’s leading and most comprehensive business and financial information website. The site provides quality

    information and analysis to its viewers.

    We Provide Recommendations on hot shares in bse,sharemarketindia.net,hot stocks bse,nse hot stocks,preferred stock recommendations,hot shares on bse,intraday

    stock recommendations,technicals of share market,mcxtip,indian stock advisory,nifty stock recomendations,stock trading franchise india,stock market trend history,bse

    option calculator,hot stocks in indian, share market,hot tips bse market free sms,indianstockcharts,hot indian stocks,hot intraday tips nse,hot intraday tips nse bse,indian

    stock recommendation for intraday,nifty stock recommendations,technical share market,technicals of indian stocks,gold intraday tips,mcx broker tips,hot stock in nse,hot

    stocks in bse,indian technicals,intraday option trading tips,nri intraday trading,nse intraday recommendations,option calculator nse,share market recommendations,stock

    market consultant,incdex tips .

    For any query feel free to contact us. Regards INSIGHTTECHNICAL TEAM +91- 9822226867

  9. sharetipsinfo says:

    Hi,

    The market is currently enjoying a good rally which has seen most stocks gain from competitive advantage and it would be advisable for all stock market enthusiasts to seize this opportunity and plan their investments in a safer yet conducive stock market. With NIFTY hovering around 4800-4900 +, it is expected to take hold of this currently rally and be realistically be closest to 5000 more so than before in what should be its new 52 week high.

    Lot many untouched stocks are still there which are ready to blast any moment.

    Regards
    SHARETIPSINFO TEAM

  10. stockproindia says:

    We Provide Recommendations on hot shares in bse,sharemarketindia.net,hot stocks bse,nse hot stocks,preferred stock recommendations,hot shares on bse,intraday
    Indian stock market

  11. hood ganster at a catholic school says:

    yeah boiiiiiiiii. thanks bra

  12. Pingback: Understanding Stock Prices: Bid, Ask, Spread

  13. Habika says:

    it is expected to take hold of this currently rally and be realistically be closest to 5000 more so than before in what should be its new 52 week high.
    ================================
    Stocks and Shares ISA

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>