How Stock Market works

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How does Stock Market work in real life?

The stock market is all about buying and selling shares. Shares of different companies where investor do study perform an investigation on company’s core business, financial data and all.

If an investor is interested in buying and selling stock in any publically traded company then they most likely need service of a brokerage firm. However, an investor can directly execute his trades but to do so he should be legally licensed, to do so. There is multiple legal approach and problems exist. The investor can’t sell his securities directly to the public unless and until the investor is licensed to do so.

To avoid any boring process of getting the license and any legal problems, investors always prefer to place an order via the trusted source. These trusted sources are stock dealers who are licensed to execute investor’s trade. These stock dealers are act as an agent who will buy or sell shares for traders and investors.

Most of the trades are placed via stock exchanges. These stock exchanges simply allow their clients to place buying or selling order. Stock exchanges are special markets where buyer and sellers gathered together to execute their security trades. The best known stock exchanges in the world are NYSE, NASDAQ, LSE, TYO, NSE, BSE etc.

When people think about the stock market, suddenly they a strange picture pop ups in their mind with crowd people are struggling for their positions, shouting on each others, making funny hand actions and writing stock scripts on a piece of paper which they are holding since a long time. However, it’s a methodical and organized system of trading, where stock prices are clearly defined by supply and demand rules only.

Investor who regularly performs trading the phenomena is quite simple and straight forward to him. Investors usually prefers to hire full time stock broker, they place their stock trade via them by simply calling them. Let’s take an example, William is a stock investor. One morning he wake up and based on his stock analysis and investigation which he did in last night on companies core business, financial data, balance sheet. He decides to place an order of buy order of shares for company apple. He will simply make a call to the stock broker and he will ask them to place an order for apple company shares for 500 quantities. On very next couple of minutes Williams receive the message on his mobile stating he is a new owner of apple’s stock, the order has been executed successfully.

Once investor do a phone call to buy 500 shares of Apple Company. Then what happened behind the scene?

Show chart or sticker workflow

  1. First of all, the investor will call to the stock broker to place his order for 500 shares of apple company.
  2. Then broker will forward investor request to firms order confirmation department.
  3. Then order request forwarded to the stock exchange to execute this trade.
  4. Then this call transfer to the trader who is working on the same floor.
  5. Then trader calls to the specialist to search for the seller who is willing sell their stock holding.
  6. Specialist found Michael who is more interested to sell his current holding of apple shares
  7. Then specialist discusses with Michael on the price, and if trader agrees on a price then order gets executed.
  8. This order confirmation then forwarded to investor William who placed an order via phone call.
  9. Now William will receive the message on his cell phone stating that he is a new owner apple Order has been executed successfully.

Now days trading does not  happen on the floor, as long as your connected to the world of internet you can place your order electronically.

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