Where Can You Trade Stocks? [Man vs The Machine]


So you want to trade Stocks.

(Great decision, by the way).

trade

We have so far explored topics such as WHAT to trade, WHY to trade, WHEN to trade but there is one more important topic left.

WHERE can you carry out your trades?

There are two basic ways you can execute a trade: on the exchange floor or electronically.

Below, we’ll explore what each of these mean and touch up on the main differences between the two execution styles.

So strap yourself in and let’s get started.

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Man vs The Machine

Over the past few decades, trading on exchanges (inc. Stocks) has undergone numerous changes.

From rules and regulations being tightened to setting up new electronic screen-based trading systems where traders communicate only via computer systems.

On top of that, number of the stock exchanges were transformed from a floor into an electronic screen-based trading system, for instance, the London and the Paris Stock Exchanges

And it is no secret that with such changes strong competition between the two systems has emerged as well.

But with virtually all of the momentum on the side of electronic trading, is there much of a future left for exchange floor trading?

Some believe there is whilst some think is a done deal.

What are your thoughts? Let us know in the comments below!

Exchange Floor Trading

Trading on the floors is the image many people have seen thanks to television and movie depictions of how the market works.

Hundreds of people rushing about, talking on phones, watching monitors, throwing their arms up, yelling, signalling to each other and quickly scribbling on their pads.

Or in other words, complete and utter chaos.

If you don’t know what I am talking about, just take a look at this short clip here.

However, at the end of the trading day, the floor calms down.

Or so they say.

So what does this mean for you? How would YOU go on about getting involved with an Exchange Floor Trading?

Here is a step-by-step walk-through of the execution of a simple trade on the NYSE.

Below, I will walk you through an execution of a simple trade on a Stock Exchange, say The New York’s Stock Exchange, NYSE.

  1. Let’s say that Andrew asks his broker to buy 50 shares of Tesla for him.
  2. Andrew’s broker’s order department sends his order to its floor clerk on the exchange.
  3. The floor clerk gets in touch with one of the company’s floor traders, who finds another floor trader who wants to sell 50 shares of Tesla. Now, this step is easier than it sounds because the floor trader knows exactly which floor traders make markets in particular stocks.
  4. The two agree on a final price and finish the deal. The notification process goes back up the line, and Andrew’s broker calls him back with the final price. The quotes are valid as long as breath is warm. Andrew can now accept this offer or pull out. This process takes a few minutes, sometimes longer depending on the Stock and the market. A couple days later, Andrew will receive the confirmation notice in the mail.

And that’s how it works in a nutshell!

If you believe this is the way to go and want to get involved in Floor trading, you will be required to pass a screening process before trading on your chosen exchange. On top of that, the exchange will send you forms to complete, ask for fingerprint cards, and you will be required to pay an application fee of $90 (the fees may vary based on your chosen exchange).

But before you go ahead with all that, let’s explore the Exchange Floor Trading’s main competitor, the electronic systems.

Electronic Trading

The Electronic type of exchange is all virtual.

It is composed of a network of computers that match buyers and sellers.

Whilst this system lacks the exciting (read: chaotic) images of the NYSE floor, it sure has its advantages.

Experts believe that this type of exchange is faster, cheaper, more efficient and less error-prone with routine trades.

But let’s take these statements one by one and see for ourselves.

Is the Electronic Trading faster? Yes. In the whole process only takes a few seconds.

Is the Electronic Trading cheaper? In most cases, yes. Brokerage commissions are significantly lower in Electronic Trading.

Is the Electronic Trading more efficient? Also yes. In this fast-moving world, there is only so much that human-based systems such as the NYSE can do.

On top of that, if you are an individual Stock trader, you will almost often get an instant confirmations on your trades through Electronic Trading. This also facilitates further control of investing by putting you that one step closer to the market.

With that being said, you’ll still need a broker to handle your trades. Through your broker, you can then access the exchange network, and the system finds a buyer or seller depending on your order.

At the end of the day, we live in times where we like things to be done efficiently and fast so it is not hard to see why electronic trading has dispatched floor traders to extinction.

Wrapping Up

So there you have it.

Each system claims advantages over the other.

And in the ongoing fight for superiority, both systems have been modified to strengthen their competitiveness.

As Rick Johnson said, the Stock market really is nothing more than a super-sophisticated farmers market linking buyers and sellers.

And ultimately, it all comes down to you and your preferences.

So where will you be trading? Let us know in the comments below!

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