The news that popular search engine Google plans to begin selling shares to the public has piqued the interest of lots of young would-be investors, doubly so because the company really intends to offer its stock to any member of the public, not just the usual brokerage industry insiders.
The initial public offering, in which companies such as Google sell stock for the first time, is one of the few instances in which shareholders’ money flows to the corporation.
Most trading occurs in the secondary market where individuals and institutions buy and sell stock among themselves.
The markets are fast-paced and complex, with billions of shares changing hands every day.
To buy stock, you need to deposit funds with a brokerage firm that has the technology to place orders for you.
Brokers charge a commission to execute your order, which can cost $10 or more per trade. Fees add up quickly if you buy and sell stock often, so be sure to consider it in your calculations of expected returns. To initiate a trade, call your broker or log on to the brokerage firm’s Web site and learn the stock’s current buying and selling prices. In market terms, you get a quote, which typically includes a bid and offer.
If you want to buy the stock, there are various ways to make a bid. One tactic is a limit order: If after its IPO, Google is selling at $25.50 and you want to buy 100 shares at $25, then your order will be executed only when a seller matches your bid.
Another method is to place a market order, which stipulates the number of shares you want to acquire but not the price. In other words, you are offering to buy the stock at whatever price it is offered once your order hits the market.
In both cases, the broker submits the order to a specific trading venue, most likely the exchange where the stock is listed.
The two largest markets in the U.S. are the New York Stock Exchange, which trades stocks of companies such as IBM and Krispy Kreme, and the Nasdaq market, home to Microsoft and other mainly tech companies.
Your broker may bypass these traditional venues for electronic networks that trade stocks sometimes more efficiently and at a better price.
Regardless, the trade is usually completed within seconds, and you are notified electronically or by phone.
And by the third business day after the trade takes place, the money is taken out of your account and the stock is transferred to you.
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Edited by Lara Weber (lweber@tribune.com) and alBerto Trevino (atrevino@tribune.com)
