How Stocks Are Bought And Sold

Execution of an order is a relatively simple matter. An understanding of the various steps which take place is best found in the following imaginary transaction:

Let's say that a Dr. R. J. Charles of Baltimore has sold his summer place and decides to buy common shares in U. S. Steel Corporation. He asks the member firm's registered representative to find out for him what Steel shares are selling for on the Exchange.

Over a wire to his New York office the representative asks for a "quote" on U. S. Steel. A clerk in the firm's New York office dials the quotation department at the Exchange and hears, over an automatic tape announcer, the current quotation on U. S. Steel.

Bids and offers are made in multiples of the unit of trading (ordinarily 100 shares) and the highest bid and the lowest offer have precedence. Bids and offers must be called out loud. Transactions are promptly reported over the Stock Exchange's nationwide ticker system.

No trades are allowed on the Exchange floor before or after trading hours. Current quotations on all listed securities are received by the quotation department over direct wires from each trading post on the floor. Each stock is assigned a particular location at one of the eighteen posts on the trading floor and all transactions in a stock must take place at its assigned location.

The clerk in the New York office immediately relays the information to Baltimore that U. S. Steel common is quoted "65-654." This means that, at the moment, the highest bid to buy Steel common stock is $65 a share and the lowest offer to sell is $65.25 a share. Thus Dr. Charles learns that 100 shares will cost him approximately $6500, plus a broker's commission.

He tells the registered representative to go ahead. The latter writes out an order to buy 100 shares of U. S. Steel "at the market" and has it wired to his New York office where it is phoned to his firm's partner on the floor of the Exchange. "At the market" means at the best price possible at that time. The floor partner hurries over to the trading post where U. S. Steel shares are traded.

About the same time, a San Francisco hardware man, James Green, decides he'll sell his 100 shares of U. S. Steel to get funds to enlarge his store. He calls his broker, gets a "quote," tells his broker to sell. That order is also relayed to the floor over a direct wire. Green's broker hurries to the Steel post. Just as he enters the Steel "crowd," he hears Charles's broker calling out "How's Steel?" Someone-usually the specialist-answers, "65 to a quarter." Charles's broker could, without further thought, buy the 100 Steel offered at 654, and Green's broker could sell his 100 at 65.

In that event, and if their customers had been looking over their shoulders, the customers probably would have said, "Why didn't you try to get a better price for us?" The customers would have been right, for that is what a broker is expected to do. Every broker is charged with the responsibility of getting the best possible price for his customer. He must exercise his experience, knowledge and brokerage skill. He must make split-second decisions.