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How Are Stocks Bought
and Sold
Stocks are bought and sold when a company initiates a initial public offering (IPO). This IPO is a distribution of newly issued stock, normally based on a documents outlying company details, which is also known as a prospectus.
Investment bankers and brokerage houses purchase large quantities of these stocks from these companies to then sell to individual investors. This arena for stocks being bought and sold is called the Primary Market. Trading in the Primary Market allows the company to receive capital from the selling of their stocks.
The stocks that are left over after an IPO are now available to be sold to investors. This arena is called the Secondary Market. This is how stocks are bought and sold allowing the profits to stay within the brokerage houses or investment banks. The companies that sold the stock to the brokerage houses and investment banks do not receive any capital from these types of sales.
The Secondary Market is where the stocks are bought and sold generally with out the brokerage houses or investment bankers. This happens over the counter or through one of the exchanges. Generally stock is bought through a brokerage account though. Once a buy order has been initiated they will go through an exchange such as the NYSE or New York Stock Exchange, the world’s largest exchange, to purchase the stocks.
There is also the ability for stocks to be bought or sold in an Over -the-counter (OTC) market. In this forum the stocks are bought and sold solely between the broker and the buyers. You will find that fairly new companies, start up companies and those companies that can not get listed on the exchanges, will be listed on the OTC markets. The NASDAQ, an electronic trading system, provides an avenue for traders to be kept abreast of stocks being bought and sold on the OTC.
When stocks are bought and sold by investors it’s based on the seller getting the right selling price from a buyer. Normally the stock is still handled by a broker for the transaction of the trade/sale. Once a sale has taken place there is generally a commission or some type of fee being charged from the brokerage or investment bank.
Once the stocks have been traded the stock certificates are transferred from the previous owner to the new owner, because the stocks are negotiable. These stock certificates are normally held in the brokerage firms name or street name, allowing for the convenience of transfers from one owner to the next. If they did not do this, each owner would have to sign each certificate for every stock that was bought or sold. This is a simplistic way of showing how stocks are bought and sold today in the investment world.
Happy Trading!!!!!
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This post was written by admin on October 9, 2008




