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What Is Being Done When Shares Are Bought and Sold?

Most stocks are traded on manifest or virtual exchanges. The New York Stock Exchange (NYSE), for example, is a physical exchange where some trades are arranged manually on a trading floor—yet, other trading activity is conducted electronically. NASDAQ, on the other hand, is a fully electronic switch where all trading activity occurs over an extensive computer network, matching investors from around the life with each other in the blink of an eye.

Investors and traders submit orders to buy and sell shares, either through a dealer or by using an online platform such as a E*Trade.

A buyer bids to purchase shares at a specified price (or at the best close by price) and a seller asks to sell the stock at a specified price (or at the best available price). When a bid and an ask match, a records occurs and both orders will be filled. In a very liquid market, the orders will be filled almost this minute. In a thinly traded market, however, the order may not be filled quickly or at all.

Physical Exchange

At a physical exchange, such as the NYSE, pecking orders are sent to a floor broker who, in turn, brings the order to a specialist for that particular stock. The specialist facilitates the swop of a given stock and maintains a fair and orderly market. If necessary, the specialist will use his or her own inventory to meet the demands of the barter orders.

Electronic Exchange

On an electronic exchange, such as NASDAQ, buyers and sellers are matched electronically. Market makers (compare favourably with in function to the specialists at the physical exchanges) provide bid and ask prices, facilitate trading in certain security, match buy and sell on the blinks, and use their own inventory of shares, if necessary.

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