Stock trading can oftentimes be a confusing point of financial disconnect because we don't understand the theory or what's behind the actions. For some people, trading stocks makes sense, much like breathing; it comes naturally. For the rest of us, stock trading seems to be a type of magical wizardry that happens with a wave of a hand in the middle of a crowded room. Suddenly you own a portion of a company and your financial success depends on how well they can make a profit. While that is somewhat accurate, let's see if we can make a little more sense of the whole stock trading conundrum.
What are Stocks?Stocks are the way a company builds investment capital. Basically, a company will trade shares of the company's profitability in the future, for some investment capital right now. Both sides benefit from this transaction because the company gets unearned revenue and the stockholder not only gets dividends from future profits, but also gets a say in the direction of the company. How do Stocks Trade? There are two basic methods of stock trading; floor exchange and electronic exchange. While there is a big push to make everything electronic, floor trading is still the most widespread way to trade stocks. Both ways work under the same general premises, but they are a little different in how the transactions take place.
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