Understanding The Stock Trading Lifecycle For New Investors

Finance & Money Blog

If you have always wanted to invest in the stock market but you don't fully understand how the markets work, then here are the basics you need to know to feel comfortable investing:

The Major Parts of the Stock Trading Lifecycle

The stock trading lifecycle describes the process of investing in the stock market from the beginning to the end. The major parts of the lifecycle are as follows:

  • investors place a buy order to buy stocks with a fund manager or brokerage house
  • the brokerage house does its due diligence, then places the order with the appropriate stock exchange
  • the trade is executed on the floor of the stock exchange
  • confirmation of the trade is made with the brokerage house

Once the trade has been confirmed with the brokerage house, then they will notify you that your purchase was completed. 

Finding a Brokerage House

As a new investor, you can find brokerage houses online or in your local community. A quick search of Google will allow you to compare the online options, and your local bank can steer you towards a reputable option in your community.

Once you have located a brokerage, then you will work with one of their stockbrokers to place buy orders.

The Two Different Types of Stock Buy Orders

There are two different types of buy orders to buy a stock:

  1. a limit order
  2. a market order

When you place a market order, you are agreeing to purchase shares of stock at the current market price. However, when you place a limit order, you are asking to purchase at a range of prices you decide on.

For example, if you wanted to purchase Company A's stock and its current market value is $50 per share, then by placing a market order you are agreeing to purchase it only for $50 a share. However, if you placed a limit order of $45-55 per share, then your broker will purchase available shares anywhere in that range of prices. 

The Purchasing Process

Once you place a buy order, then the brokerage house works with their staff on the floor of the stock exchange to purchase it. Once purchased, the brokerage house will confirm the purchase meets your requirements and if it does, then the sale will be finalized and you will be notified. For the best results, this should also involve post-trade processing to make sure no mistakes were made and to verify all the transaction details. For more information, call a company like VAKT.

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