We hear about the stock market every day. Most people don’t know what it means. They don’t understand how people trade stocks and the rules that govern the activities of the market. We shall look at these and then some. Buying and selling stocks occur through brokers that work through marketplaces known as exchanges. If you have some stock you want to buy or sell, you must go through a broker.
Various types of brokers interact with each other on specific exchanges. Government entities regulate these exchanges. Popular among these entities is the United States Securities and Exchange Commission (SEC).
In the United Kingdom, it is the Financial Conduct Authority (FCA). Here are a few tips on how the stock market works.
Public Companies Have Equity
One premise to trading stock is that public companies have equity. What we mean by equity is the shares that are available for purchase or sale. These shares are publicly available on exchanges like the London FTSE 100 via a process called an Initial Public Offering (IPO).
An IPO is a process where a private company must complete legal and administrative issues that government authorities must approve for its equity (shares) for sale on a stock exchange.
Stock Exchanges are Marketplaces
Stock exchanges are marketplaces where shares are bought and sold. We often see the full names or abbreviations of these marketplaces in the media. For instance, the New York Stock Exchange is called the NYSE. The Financial Times Exchange is the FTSE 100. The London Stock Exchange is called the LSE.
Stock Trades Occur Through Brokers
Brokers are companies that individuals and corporate executives contract to buy and sell their shares. These brokers have their specific conditions for trading stocks. Depending on the regulator, they have their rules for trading on specific exchanges as well.
Stock Exchanges are Automated
The rise in technology has enabled the automation of buy orders and sell orders on exchanges. Some exchanges have regulations that allow only residents or citizens of specific countries to trade stocks. Others allow just about anybody with minimal rules to do this.
Certain technology providers and software companies specialize in developing technology for specific stock exchanges. They, too, are highly regulated by governments in their jurisdictions.
You Can Trade Stocks Using Special Instruments
There are special instruments called contracts for differences (CFDs) that allow you to trade stocks without registering with a broker. CFDs allow brokers to expose you to the stocks, and you can make a profit or take a loss with them too.
Even if you don’t know how to trade CFDs, you can learn. CFD instruments use the difference between the bidding (buying) and asking (selling) price to determine profit or loss for the trader. Brokers allow you to trade these CFDs. They even create tutorials and practice accounts to teach people how to trade CFDs. With time, practice, further reading, and research, you can learn how to trade CFDs successfully.
Stock trading is one of those activities that can be profitable with knowledge. Always do your research before making trading decisions.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only.