Trading

An insight into stock trading

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A stock exchange is defined as an organization providing a marketplace for either physical or virtual trading shares, bonds and warrants or other financial products where investors (represented by stock brokers) may trade shares of a wide range of companies. A company typically lists its shares by meeting and maintaining the listing requirements of a particular stock exchange. In the United States, through the inter-market quotation system, one can buy or sell stocks listed on one exchange on several other exchanges, including relatively new so-called ECNs (Electronic Communication Networks like Archipelago or Instinet).

In the USA stocks used to be broadly grouped into NYSE-listed and NASDAQ-listed stocks. Until a few years ago there was a law that NYSE listed stocks were not allowed to be listed on the NASDAQ or vice versa.

Arbitrage trading

Although some companies are likely to raise capital by offering stock on more than one exchange, a keen investor with access to information about such discrepancies could invest in expectation of their eventual convergence, known as an arbitrage trade. In today's era of electronic trading, these conflicts, if they exist, are both shorter-lived and more quickly acted upon. As such, arbitrage opportunities disappear quickly due to the efficient nature of the market.

Bankruptcy

In case of bankruptcy, the company stocks are either traded in OTC (Over the Counter) or Pink and are no longer traded in a stock exchange such as NYSE or NASDAQ.

Buying

Various methods of trading and financing stocks exist. The most common means is through a stock broker. Whether they are a full service or discount broker, they arrange the transfer of stock from an entity to another. Most trades are actually done through brokers listed with a stock exchange, such as the New York Stock Exchange.

There are many different stock brokers from which to choose, such as full service brokers or discount brokers. The full service brokers usually take a higher commission per trade, but give investment advice or more personal service; the discount brokers offer little or no investment advice but take fewer commissions for trades. Another type of broker would be a bank or credit union that may have a deal set up with either a full service or discount broker.

There are other ways of buying stock besides through a broker. Where one can directly buy from the company itself. If at least one share is owned, most companies will permit the purchase of shares directly from the company through their investor relations departments. However, the initial share of stock in the company will have to be obtained through a regular stock broker. Another way is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the stock is ordered directly from the company, usually without the aid of brokers.

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