How are stocks traded on the exchange?
Stocks, especially the better known ones, tend to trade in an auction market. Buying a stock is like buying an antique at an auction house. The auctioneer is paid a commission to sell the antique to the highest bidder. If there aren’t lots of bidders, the price will be lower than if lots of people want to buy it. Similarly, members bring orders to a stock exchange for auctioning. They can do this physically by sending the orders to an exchange trading floor where they are executed by traders. Or, they can handle the whole order electronically. The goal in both cases is to expose all buy orders for a stock to all sell orders. That way, the best deal can be struck. How are stock prices established? Both buy orders (bids) and sell orders (ask) will have a price attached to them. There is always a difference between what is being asked and what is being bid. This is called the spread and the difference is usually quite small, especially for more popular stocks. Big spreads often indicate a
