Trading Essentials

What is Trading All About?

A trader is very much like a merchant. We attempt to buy inventory, stocks in this particular case, at a low price and then advertise them for sale at a higher price.

History of Trading

Securities markets in the United States began with speculative trading in issues of the new government. In 1791, the country's first stock exchange was established in Philadelphia, the leading city in domestic and foreign trade. An exchange in New York was set up in 1792, when 24 merchants and brokers decided to charge commissions while acting as agents for other persons, and to give preference to each other in their negotiations. They did much of their trading under a tree at 68 Wall Street.

Stock Market Basics

The stock market is where most new students at Online Trading Academy are most comfortable when they arrive. They have traded stocks previously, either as individual shares or as components of a mutual fund purchased by their 401(k). They understand the concept of owning a piece of a company, and betting on how well that company is going to do in the near term. These stock market basics are very comfortable to them.

Stock Trade

What actually happens when you make a stock trade? That question would have been easier to answer in the days of Jesse Livermore, author of “Reminiscences of a Stock Trader”. In that classic from the 1930s he describes the atmosphere in the “bucket shops” in which traders would watch prices move on a ticker tape and, when they wanted to buy, they would find somebody who was willing to take their money (or issue an I.O.U.) and guarantee that the trade would go through.

Direct Access Trading and Level II

Prior to the advent of Direct Access Trading, traders would place orders to buy or sell stock through a middleman, known as the traditional brokerage firm. A trader trading in this way would incur various problems due to the presence of the middleman, such as a delay in trade execution or execution of the order at a price outside the best market price available.


The most powerful advancements to the NASDAQ system are the establishment and active participation of Electronic Communication Networks (ECNs) in the market. ECNs enable institutions, investors (small and big), and traders a means to electronically transmit their current best buying and selling prices. Very often, these prices are very competitive with market maker quotes. Recently, ECN quotes and not market makers' quotes, often establish the best prices.

Market Makers

The Financial Industry Regulatory Authority (FINRA) is the sum of the merger between the National Association of Securities Dealers' (NASD) and the New York Stock Exchange’s (NYSE) regulation committees. It is the organization that implements, maintains and regulates the various firms that make up the market maker system and the investing public. There are currently almost 500 members. These are constantly changing as mergers, regulatory suspensions or time cause them to change names, symbols or specific securities that they deal in. Not all market makers make a market in all securities. Their very name describes their primary function – to make a market in a stock by always being willing to buy and sell that equity at all times during regular market hours. They wear several other hats as well – they often represent themselves, individual clients and institutional clients.

Order Routing

With the emergence of Direct Access Trading in the market, there is now a multitude of ways to execute your order to buy or sell stock. This will largely depend on the brokerage firm that holds your account, as well as the type of account you are holding.

Order Types

The following are the types of orders generally available:

High Frequency Trading

High frequency trading is the practice of using high speed computers and automated programs to move in and out of trades very quickly. High speed trading is typically performed by large institutional trading firms which may hold positions as briefly as a few seconds or even a fraction of a second, and seek to make profits on very small shifts in price.

3 Day Trading Strategies for New Traders

Day trading is considered by some to be the most challenging style of trading, which is why we want to jumpstart your journey with a few proven trading strategies. Success requires constant technical precision, emotional restraint, and mental focus. These are not easy traits to initially exhibit, much less master. Consequently, newer traders can feel discouraged with their ability to perform and may fail to do the crucial things necessary to succeed in this field. The key components and day trading strategies for achieving ongoing success are thinking differently, planning, and continued education.

10 Day Trading Secrets for Beginners

Day Trading refers to market positions which are held only a short time; typically the trader opens and closes a position the same day. The concept got a bad reputation in the 1990’s when many beginners began to day trade, jumping onto the new online trading platforms without applying tested stock trading strategies. They thought they could “go to work” in their pajamas and make a fortune in stock trades with very little knowledge or effort. This proved not to be the case.

Are Stop Loss Orders Useless?

I’ve never really understood the question “Are Stop Loss Orders Useless?” To me, it is akin to asking if pilots on airplanes are useless? Or police and firemen? Are Seatbelts? Are locks on our doors? Is insurance?

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