The stock exchange has puzzled many people over the years with its behavior. Not many so called analysts have been able to make predictions that are always right and that’s because price movement of stocks are determined by a variety of factors like political developments, economic news, company performance of the stock, influence of foreign institutional buying and so on. In short, it is just another market that behaves according to the demand and supply existing in a particular time. It can be compared to a big super mall where individuals are either selling or buying stocks. For each buyer, there’s a seller and the other way around.
This particular transaction of purchasing and selling of stocks is facilitated with a stock exchange. The New York Stock Exchange is one such example. As compared to earlier times, when you had to be physically present at the exchange to trade stocks, modern trading is performed through online trading portals that are owned by brokers and many people have had the opportunity to do so in the comfort of their homes.
Let’s explore one example of how a stock trade happens.
You need to open a trading account having a broker in addition to a deposit total with which you can trade inside a specific volume of shares depending on the price of the stock you wish to trade in. You then place an order to buy a particular stock in a particular price and the quantity might be say 100. The trading platform will communicate to all networks that somebody wants to buy 100 shares of a particular company and this immediately results in an engaged seller of that stock to make available 100 shares at the price you wanted and the transaction is performed online. Hundred shares get transferred in the seller’s account for your requirements. Several such trades keep happening with the working hours of the stock exchange on a daily basis and the relevant brokerage fee; taxes towards the government and so forth are all adjusted online within the trade that’s executed.
Now the decision of what stock to purchase is based on valuation from the stock and that is determined by the earnings the company is generating, the future potential from the company or even the industry and also the time the customer is willing to stay invested in that stock. Those are aspects that merit discussion separately.