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Continuous trading allows for immediate execution of stock purchases, increasing speed and flexibility for investors. Market and limit orders can be used, but placing multiple small orders can increase costs. Most trading in the US is done through continuous trading systems.
Continuous trading refers to the process by which a stock purchase is made and executed immediately after it has been placed, rather than after a batch of trades has been collected. Most trading within the United States is done using a continuous trading system. There are several benefits to such a system, including increased speed.
Trading refers to the concept of buying and selling shares. Initially, this was done in person on the floor of the New York Stock Exchange. While some in-person trading still takes place there, much of the trading has moved online and is done remotely by licensed stock brokers and individual investors who can trade online using discount brokerage firms.
When a person wants to buy a stock or trade a stock, they place an order. You can place a market order or a limit order. If you place an order on the market, with continuous trading, that order is filled as soon as you place it. Buy the stock for whatever it is “asking,” which refers to the price current stock owners are asking at that time. Alternatively, a person could place a limit order and specify that he will buy the stock only when it hits a certain specified price; in such a situation he then buys the shares immediately after the shares have reached the designated price.
In a continuous trading system, as soon as someone enters a market order, that order is placed and that person becomes the owner of the security. The same is true as soon as someone’s limit order reaches the price they have chosen to buy or sell at. This is in contrast to batch trading, where a series of smaller orders were collected and a buy or sell was made only when there was a larger order or a buy or sell request.
There are many benefits to continuous trading. First, the fact that the process is faster is important. A person can buy and sell shares instantly instead of waiting. Because stock prices fluctuate quickly and wildly at times, it’s important for an investor to have the ability to do so. Otherwise, the price of the stock he wants to buy or sell may change over time before the batch order is placed.
The main disadvantage, however, is the increased cost of placing many small individual orders. It is easier for a broker or buyer to place one large order than ten small ones. Since buyers and sellers generally pay a commission for each trade they execute, however, much of that cost is passed on to the individual investor as opposed to the brokers or brokerage houses that actually execute the trades.
Smart Asset.
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