Stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately.
Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. A brokerage firm is a dealer of stocks and other securities that acts as your agent when you want to buy or sell stocks.
Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders at computer terminals.
Most trading of stocks happens on a stock exchange. These are special markets where buyers and sellers are brought together to buy and sell stocks. The best known stock exchanges are the New York Stock Exchange, the American Stock Exchange and NASDAQ. Besides these three national exchanges, there are many smaller regional stock exchanges, such as the Pacific in Los Angeles, the Philadelphia, the Boston, the Cincinnati, and the Chicago. Some small companies are listed only on a regional exchange, while some NYSE and AMEX companies are listed on these smaller exchanges, as well, to help trades happen faster and cheaper for investors.
Actual trades are based on an auction market paradigm where a potential buyer a specific price for a stock and a potential seller a specific price for the stock. (Buying or selling at market means you will accept any bid price or ask price for the stock.) When the bid and ask prices match, a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price.
The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace(virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.
From the perspective of an investor, buying and selling stocks seems pretty simple. If you use a full-service broker, just call her up on the phone and place an order for 100 shares of Apple. Within a few minutes, you'll receive a confirmation that your order has been completed, and you'll be the proud new owner of Apple's stock. Behind the scenes, however, there's a lot of action that takes place between your order and the confirmation.
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