Definition

Stock trading and stock investing are considered two different activities. Stock trading is considered a short term strategy in which the trader is attempting to profit from short term trends. A stock investor commits money to a certain company's stock for a long period of time attempting to capitalize on long term trends.

Function

Just like an auction, there is a buyer and seller. Each party negotiates the sale price of the stock. Often, this process takes less than a second.

Volume

Volume, or number of shares changing hands, affects the buy-and-sell process. For stocks that are highly sought after, often there are large numbers of buyers and sellers at any given second. This makes the buy-and-sell price nearly identical, so no negotiation has to take place. For less desired stocks, sometimes the prices offered on the buy-and-sell side are much further apart. This causes the sales order to take much longer while both sides change their prices to meet in the middle.

How to Trade

First, the trader needs an account with a stockbroker. Once that is established, the trader logs on to the broker website and enters an order. If one person enters a buy order for a stock with the symbol XYZ, it is electronically matched with somebody who has entered a sell order for XYZ at the same price. If a match is found, the trade is executed. If there is no match, the system waits until a match can be found.

Which Stock?

Picking the right stock to buy involves extensive research. The person wishing to begin stock trading is advised to spend a lot of time educating himself before committing real money to the stock market. Many websites allow the trader to set up a virtual portfolio in which fake money is used.

Source:

MarketWatch: How to Trade Stocks

More Information:

Investopedia: How to Pick Stocks