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09-23-2008, 01:20 PM
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How an Order is Executed on the New York Stock Exchange
Previous Lesson If you are looking for additional stock trading education, trading signals, and analytical support I highly recommend INO's free and paid products which you can learn more about here. Next Lesson - Full Course In our last lesson we continued our course on the logistics of stock trading, with a look at the oldest exchange in the United States, the New York Stock Exchange. In today's lesson we are going to continue this discussion, with a look at the different participants involved in the NYSE, and how a stock trade is executed on the exchange. The starting place when buying or selling a stock is the brokerage firm. Before the internet, brokers were what are known today as "full service brokers", which basically means that you get to call and speak to a registered broker when placing your trade. With the advent of the internet came electronic platforms which allow traders to bypass the human stock broker and place trades with the click of a mouse. This obviously lowers transaction costs for the brokerage firms considerably and allows them to provide reduced cost trading which is referred to as discount brokerage. Before we get into electronic trading however, lets first look at how trades were executed on the NYSE before the internet so we can gain a better understanding of the process a trade goes through to be executed. Lets say for example that you had been doing some analysis and felt that GE's stock was due for a run higher so you decided to buy 100 shares. Before the internet you would pick up the phone and call your stock broker and ask him to please buy 100 shares of GE at the current market price of $26.43 dollars a share. Your broker would then call his firms order department with the order for 100 shares of GE, who would then notify the firms clerk who actually sits on the floor of the New York Stock exchange where GE's stock is traded. The order clerk would then give the order to the firm's floor broker who would then approach the specialist who was responsible for conducting the market in GE stock. The order would then be given to the specialist who would match your order to buy 100 Shares of GE at the current market price with another trader who was looking to sell at least 100 shares of GE at the current market price. Once the trade is completed the floor broker would then notify the clerk that the trade was executed and give him or her the price. The clerk would then notify the firm's order department, who would then notify you and your broker that your trade was completed. Sound complicated enough for you? Well luckily things have come a long way with the internet and the large majority of trades are now processed on the NYSE through an electronic system called SuperDOT. For trades under 100,000 shares, the SuperDOT system can now be used to route trades of under 100,000 shares directly to the specialist on the floor, bypassing the other human components which used to be involved in the trade. As you can imagine this system, combined with online trading systems which allow traders to enter trades right from their computer, has sped up trade execution immensely, while lowering costs at the same time. While stock brokers, order clerks, and floor brokers are all still a part of the process, stock brokers now focus on providing more customized financial advice and the clerks and floor brokers provide assistance with executing very large order sizes. Thats our lesson for today, in our next lesson we will look at a market which competes with the New York Stock Exchange as a completely electronic exchange, the NASDAQ so I hope to see you in that lesson. As always if there are any questions or comments please leave them in the comments section below, and good luck with your trading!
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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades. 
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