Continuous trading allows for immediate execution of stock purchases, providing faster transactions and the ability to react to rapidly changing stock prices. However, the higher cost of placing many small individual orders is a drawback.
Continuous trading refers to the process by which a purchase of shares is made and executed immediately after it is placed, rather than after a batch of trades has been collected. Most transactions within the United States are conducted 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 stocks. Initially this was done in person on the floor of the New York Stock Exchange. While in-person trading still occurs, much of the trading has moved online and is executed from a distance by licensed stockbrokers and by individual investors who can trade online using discount brokerage houses.
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 a market order, with continuous trading, that order is executed as soon as you place it. He buys the shares for whatever he “asks,” which refers to the price that the current owners of shares are asking at the time. Alternatively, a person could place a limit order and specify that he will buy the shares only when he reaches a certain specified price; In such a situation, he buys the shares immediately when the shares reach the designated price.
Under a continuous trading system, as soon as someone places a market order, that order is fulfilled and the person becomes the owner of the stock. The same is true as soon as someone’s limit order reaches the price at which she chose to buy or sell. 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 request to buy or sell.
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. Since stock prices fluctuate rapidly and wildly at times, it is important for an investor to have the ability to do so. Otherwise, the price of the shares you wish to buy or sell may change in time before the batch order is placed.
However, the main drawback is the higher cost of placing many small individual orders. It is easier for a broker or buyer to place one large order rather than ten small ones. Since buyers and sellers generally pay a commission for each trade executed, however, much of that cost is passed on to the individual investor rather than the brokers or brokerage houses that actually execute the trades.
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