How Stock Trading Works
Stock trading happens on exchanges where buyers and sellers meet. Understanding this process is key to becoming a confident investor.
Stock Exchanges
Exchanges like NYSE and NASDAQ are marketplaces where stocks are bought and sold. Think of them as farmers' markets for securities. They match buyers with sellers and ensure fair, transparent transactions.
Market Orders vs. Limit Orders
A market order executes immediately at the current price. A limit order only executes at your specified price or better. Market orders guarantee execution but not price; limit orders guarantee price but not execution.
Bid-Ask Spread
The bid is the highest price buyers will pay. The ask is the lowest price sellers will accept. The difference is the spread. Narrow spreads (a few cents) indicate liquid, actively traded stocks. Wide spreads suggest less trading activity.
- Stock exchanges match buyers and sellers in a regulated marketplace
- Market orders execute fast; limit orders give you price control
- The bid-ask spread shows how liquid a stock is
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