Stock Market Basics

Learning the stock market basics will help you understand how the stock market works and will help you decide if investing in the stock market is for you. Below are some stock market basics.

What is a stock market?

The stock market is where you buy and sell stocks. There are usually more than one stock market in each country. Each stock market has its own rules of trading and requirements for listing stocks.

How does a stock market work?

When a customer wants to buy a stock, the customer sends in his/her request to a stockbroker who is registered and licensed and works for a brokerage firm. The investment brokerage firm must be a member of a stock exchange. The order to buy or sell the stock is then placed and executed at the stock market.

There are three types of professionals trading on the stock market.

Stockbrokers

Stockbrokers, or brokers for short, handle buy and sell orders placed by individual clients and sometimes institutional clients. Stockbrokers earn commission per trade. Different stockbrokers can charge different amount of commission.

Dealers

Dealers buy and sell stocks for their own accounts. Sometimes, dealers trade directly but other times they trade through brokers. They also buy and sell stocks for their brokerage firm's account. Dealers do not handle individual trade orders.

Traders

Traders are also called registered or competitive traders. Traders buy and sell stocks for their own portfolios. Traders are often employees of dealers who handles the firm's own trading.