Education / Share market / Trading shares

A stock exchange is an organization that provides a marketplace for either physical or virtual trading shares, bonds and warrants and other financial products where investors may buy and sell shares of a wide range of companies. Stocks used to be broadly grouped into NYSE-listed and NASDAQ-listed stocks. Many large foreign companies choose to list on a U.S. exchange as well as an exchange in their home country in order to broaden their investor base.

Buying
There are various methods of buying and financing stocks. The most common means is through a stock broker. It doesn't matter how much money you have to buy shares with. You can phone a broker with $1000 to invest, or even $500.

But there is a small trap. You need to bare in mind the brokerage fees. They are paid according to the amount you have to invest. Brokerage is part of the total cost of buying shares. You pay brokerage on every trade you make. For example, if you place two buy orders for shares in two different companies, you'll pay two times brokerage. Whether they are a full service or discount broker, they arrange the transfer of stock from a seller to a buyer. Most trades are actually done through brokers listed with a stock exchange, such as the New York Stock Exchange.

There are other ways of buying stock besides through a broker. One way is directly from the company itself. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments. Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the stock is purchased directly from the company, usually without the aid of brokers.

When it comes to financing a purchase of stocks there are two ways: purchasing stock with money that is currently in the buyers ownership, or by buying stock on margin. Buying stock on margin means buying stock with money borrowed against the stocks in the same account.

The two most common types of orders are market orders and limit orders.

Market orders
A market order is an instruction to buy or sell at the best possible price. Place a market order if you want to buy shares at the best price available when the order hits the market. It usually sounds like "buy 2400 (company) at market". The market order will then be executed at the market makers' best bid or offer price for that series.

Limit orders
A limit order is an instruction to buy or sell only at a specified price or better. This places a price limit on the order. You'd use a limit order if you didn't want to pay more than a certain price for your shares. For example, "buy 1500 (company) at a limit of $5.35". Your order will be executed at or below $5.35.

"Executed" means an order has been matched with another order to complete a trade.

Whatever type of order you've placed, your diligent broker should repeat it back to you to ensure they've recorded it correctly. When your order is executed, your broker will send you a contract note.

Once you've paid your money and the trade has been settled, the next correspondence you'll get is from the share registry. It's called a holding statement and it details the number of shares you own and any movements in your holdings.

Selling
Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high (if not in short selling); although a number of reasons may induce an investor to sell at a loss to avoid further loss.

As with buying a stock, there is a transaction fee for the broker's efforts in arranging the transfer of stock from a seller to a buyer.

After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the earnings. Importantly, on selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis.