A:

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

Investors and traders submit orders to buy and sell stock shares, either through a broker or by using an online order entry interface (i.e., a trading platform such as E*Trade). A buyer bids to purchase shares at a specified price (or at the best available 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 transaction occurs and both orders will be filled. In a very liquid market, the orders will be filled almost instantaneously. In a thinly traded market, however, the order may not be filled quickly or at all.

At a physical exchange, such as the NYSE, orders are sent to a floor broker who, in turn, brings the order to a specialist for that particular stock. The specialist facilitates the trading 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 trade orders.

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

RELATED FAQS
  1. What's the difference between a Nasdaq market maker and a NYSE specialist?

    What's the main difference between a specialist and a market maker? Not much. Both the New York Stock Exchange (NYSE) specialist ... Read Answer >>
  2. Who employs the specialists at New York Stock Exchange (NYSE)? Do they work for themselves, ...

    Before we address this question, let's review what specialists do. Specialists are people on the trading floor of an exchange, ... Read Answer >>
  3. What are the advantages of a limit order over a market order?

    Understand the functional differences between a limit order and a market order and the respective advantages and disadvantages ... Read Answer >>
  4. Why are the bid and ask quotes usually so far away from each other in after-hours ...

    After-hours trading is defined as the exchange of securities outside of an exchange's specified regular trading hours (usually ... Read Answer >>
  5. What do the bid and ask prices represent on a stock quote?

    Learn what the bid and ask prices mean in a stock quote. Find out what represents supply and demand in the stock market and ... Read Answer >>
  6. How long does it take a broker to confirm a trade after it is placed?

    Learn about placing trades with a broker and the amount of time required to received confirmation of different types of orders, ... Read Answer >>
Related Articles
  1. Markets

    Stocks Basics: How Stocks Trade

    Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading ...
  2. Investing

    What's an Exchange?

    An exchange is an organized marketplace where securities and other financial instruments are traded.
  3. Markets

    The Global Electronic Stock Market

    The way trading is conducted is changing rapidly as exchanges turn toward automation.
  4. Investing

    The Basics Of The Bid-Ask Spread

    The bid-ask spread is essentially a negotiation in progress. To be successful, traders must be willing to take a stand and walk away in the bid-ask process through limit orders.
  5. Investing

    Electronic Trading: Conclusion

    If you are a long-term investor, you can take this tutorial with a grain of salt. At least now you have some insight into how electronic systems give direct access to the market. We hope this ...
  6. Trading

    Take A Tour Of The Futures Trading Pit

    Discover why controlled chaos can mean an exciting investment experience for you.
  7. Investing

    Learn About the New York Stock Exchange

    The New York Stock Exchange (NYSE) is nicknamed the “Big Board,” and for good reason. It’s the largest, oldest and best-known stock exchange in the world.
  8. Trading

    Introduction To Order Types: Market Orders

    Note: Use a market order to guarantee a fill. A market order is the fastest and most reliable way to get in out of a trade. A market order is appropriate if getting filled is more important than ...
  9. Investing

    How Brokers Can Avoid A Market-Maker's Tricks

    Ensure that you and your clients are getting the best deal by avoiding these three pitfalls.
  10. Investing

    What is the Stock Market?

    A stock market is where shares in corporations are issued and traded. Stock markets are key components of a free market economy.
RELATED TERMS
  1. Specialist

    A member of an exchange who acts as the market maker to facilitate ...
  2. Equity Market

    The market in which shares are issued and traded, either through ...
  3. Exchange

    A marketplace in which securities, commodities, derivatives and ...
  4. Hybrid Market

    A securities exchange that facilitates trading through a blend ...
  5. Trading Floor

    The floor where trading activities are conducted. Trading floors ...
  6. Specialist Unit

    A group of firms or individuals that act as a market maker for ...
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center