How stocks trade

You have, of course, heard of “the stock market.” The fact is that there is no one stock market – there are many stock exchanges around the world that stocks trade on.

Most stocks are traded on public exchanges. In the past, these consisted of physical trading floors. These trading floors have largely been replaced by computerized networks, which have given average people unprecedented access to stock exchanges. This gives you the ability to trade stocks with ease.

Stock exchanges are known as “auction markets.” Public exchanges have specific listing and disclosure requirements that companies listing stock on them must adhere to. For example, if there is an important or “material” piece of news about a company, that company must ensure that it is publicly announced in order to ensure that all market participants have a fair chance to act on the news. On an auction market, it is possible to see all of the buy and sell orders that have been entered on the exchange.

Stocks also trade “over-the-counter” (OTC). OTC markets are called “dealer markets.” Stocks traded this way tend to be more risky, since public information about them is not as readily available, and the activity of market participants isn’t as transparent.

Market participants include large, “institutional” investors (pension funds and mutual funds, for example) and individual “retail” investors. Since institutional investors take very large positions in stocks, and have significant research and trading resources at their disposal, other market participants take notice when they take or exit a position in a given stock.

When you decide to make a stock trade, your order will either be sent to the exchange using a smart router, an electronic communication network (ECN) route, or an alternative trading system (ATS). Orders sent to Canadian exchanges are automatically routed. Orders sent to U.S. exchanges and markets can be automatically routed, or traders can select a route. ECNs and ATSs let you see real-time data about market activity. Since many larger market participants like institutional investors employ full-time traders and have access to the latest technology, using the real-time data available to you through ECNs and ATSs can give you a leg up in your trading.