4-1 How common stocks are traded

When the company needs to raise a new capital, it has two options. It can either borrow it or by selling new shares to investors. Sales of shares to raise new capital take place by so-called "primary market". However, most of trades take place place on the "secondary market".

Most of the trades take place on the 2 biggest stock changes named New York Stock Exchange(NYSE) and Nasdaq.

In addition to NYSE and Nasdaq there are also electrocnic communication netweorks (ECNs) that connect traders with each other. Large U.S. companies may also arrange for their shares to be traded on foreign exchanges, such as the London exchange or the Euronext exchange in Paris and vice versa (NYSE trades shares of Deutsche Bank).

Suppose right now that Mr. Brown holds the share of the company X. However, she decided that she wants to sell it. Ms. Jones wants to increase her stock in the firm. They can not do it directly between themselves. The transaction must go through a brokerage firm.

So Mr. Brown gives his broker a market order to sell his shares at the best available price. On the other hand Ms. Jones wants to buy the shares at the lowest available. Therefore, he states the price limit at which he is willing to buy the company X's stocks. If it cannot be executed immediately, it is recorded in the exchange’s limit order book until it can be executed.