What is the best way to learn about stocks and how the stock market works?

Before investing, it is important to know that share trading is no magic or gambling that can fetch you money over night. It is a serious business that needs to be well taken care of and demands hard work and thorough calculations to get sheer profits.

The best thing among stock market investment states is "hear to all, do for you". Listening to every clichÃ© is as important as different traders face different situations and they have their own say in the practical situations. However, no one knows at what time the advice may help in producing favourable returns. Though, it should be made sure that the tips and advice do not grab the individual thought and calculations. Learn to mold the advice to your own benefit is the main criteria.

The below tutorial may help you in the stock market.

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How Do The Stocks Trade

Stocks are bought and sold on stock exchanges where the sellers and buyers meet to decide the prices of stocks and trade them. Such stock exchanges are made of brick and mortar. Stocks are bought and sold on the trading floor. We have often seen the visuals of traders in blue jackets wildly waving their hands, gesticulating and trying to out-yell each other. This type of exchange is called physical exchange.

The other type of exchange is virtual exchange. It is comprised of a network of computers where stocks are traded electronically. The traders can buy and sell the stocks from the comfort of their homes using computers and internet.

The purpose of the stock market is to facilitate the exchange of securities, in other words, buying and selling of shares. A stock market is like a farmers' super-sophisticated market which brings together both the buyers and sellers of stocks. You can imagine how difficult it would be to find a customer to buy your shares in your neighborhood. It might not be easy to find one even if you advertised in the local press. Even if you found a customer, it would still be difficult to sell him your stock because the trade requires certain formalities, which can be performed only through the good brokerage firm.

Stock exchange solves the problem of buying and selling the stock.

The stock market is of two types, primary market and secondary market. The primary market is one where securities are created through an Initial Public Offering. Once the shares have been issued, they are traded in another market which is called secondary market. So secondary market is the place where the investors trade the previously issued securities without involving the share issuing companies. When we talk about stock market, we are referring to the secondary market. It must also be understood that the trading of a company's stock does not directly involve the company itself.

There are three major stock exchanges in the US. They are New York Stock Exchange-NYSE, National Association of Securities Dealers Automated Quotations or the NASDAQ and the American Stock Exchange -AMEX.

The New York Stock Exchange

Also nicknamed the 'Big Board', the NYSE is the most prestigious exchange in the world. Founded in 1792, more than two centuries back, NYSE is an example of a physical exchange. It is a listed exchange and provides market for the stocks of some of the largest companies of the US including like General Electric, McDonald's, Citigroup, Coca-Cola, Gillette and Wal-mart.

Orders come in through the brokerage firms which are the members of the exchange. Stocks are auctioned on the spot called trading post. There is a specialist who matches the buyers and the sellers. The current price is the highest price that any buyer is ready to pay and the lowest price is the one which the seller is willing to accept. Once a trade has been arrived at, the details are sent to the brokerage firms. Computers do play a significant role in NYSE. The trading floor of the exchange is located at 11 Wall Street and is comprised of four trading rooms.

The NASDAQ

The NASDAQ is the perfect example of a virtual stock exchange. It is also called over-the-counter market. Trading at NASDAQ is done electronically through the computers and a telecommunication network of traders. NASDAQ trades the stocks of some of America's big technology companies such as Microsoft, Cisco, Intel, Dell and Oracle. The brokerage firms act as the market makers for various stocks on the NASDAQ. The market makers provide for continuous bid and ask prices. An inventory of shares is maintained to meet the demands of the investors.

The American Stock Exchange or the AMEX

AMEX is the third largest stock exchange in the US. It provides for the trading of small-cap stocks and derivatives.

If you want to do stock trading you will have to find a stockbroker who will make an order to buy or sell stocks. It is the stock broker who does all the work of buying and selling the stocks for you. All you have to do is to open an account with him and place your orders.