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Market Mechanics:
A Guide to . Stock Markets
release
Although the inner workings of the stock market are fas-
cinating, few introductory texts have the space to describe them
in detail. Furthermore, the . stock markets have been chang-
ing so rapidly in recent years that many books have not yet
caught up with the changes. This quick note provides an up-to-
date view of how the . stock markets work today. This note
will teach you about:
• The functions of a stock market;
• Stock markets in the United States, including Nasdaq
JAMES J. ANGEL, .
and the NYSE;
Associate Professor of Finance
• The difference between limit and market orders;
McDonough School of Business
• How stock trades take place; and
etown University
• Lots of other interesting tidbits about the stock market
that you wanted to know, but were afraid to ask.
Market Mechanics: A Guide to . Stock Markets
DISH EBAY ERICY ERTS ESRX FISV FLEX GENZ GILD GMST HGSI ICOS IDPH IDTI IMCL IMNX INTC INTU ITWO
What a Stock Market Does most productive opportunities are. These signals channel
The stock market provides a mechanism where people capital to the areas that investors think are most produc-
who want to own shares of stock can buy them from peo- tive. Finally, the financial markets provide important risk-
ple who already own those shares. This mechanism not management tools by letting investors diversify their
only matches buyer and seller, but it also provides a way investments and transfer risk from those less able to toler-
for the buyer and seller to agree mutually on the price. ate risk to those who can better tolerate risk.
Note that when you buy shares in a publicly pa-
ny such as Microsoft, you are not buying the shares from What Happens When You Place a
pany itself. You are buying the shares from anoth- Stock Order?
er investor who already owned t