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Continuous trading refers to the process by which a stock purchase is made and executed immediately upon being placed, instead of after a batch of trades have been collected. The majority of trades within the United States are 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 stock. Initially, this was done in person on the floor of the New York Stock Exchange. While some in-person trading does still occur there, much trading has moved online and is executed from a distance by licensed stock brokers and by individual investors who can trade online using discount brokerage houses.
When a person wishes to buy a stock or to trade a stock, he places an order. He can place either a market order or a limit order. If he places a market order, with continuous trading, that order executes as soon as he places it. He buys the stock for whatever the "ask" is, which refers to the price that current stock owners are asking at the time. Alternatively, a person could place a limit order and specify that he will buy the stock only when it reaches a certain specified price; in such a situation he then buys the stock immediately upon the stock reaching the designated price.
Under a continuous trading system, as soon as someone places a market order, that order is made and the person becomes an owner of the stock. The same is true as soon as someone's limit order reaches the price at which he chose to buy or sell. This is in contrast to batch trading, in which a series of smaller orders were collected and a purchase or sale 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 quicker is important. A person can buy and sell stock instantly instead of waiting. Since the prices of stock fluctuate rapidly and wildly at times, it is important that an investor have the ability to do so. Otherwise, the price of the stock he wants to buy or sell could change in the time before the batch order is placed.
The major downside, however, is the increased cost of placing many small individual orders. It is easier for a broker or buyer to place one large order as opposed to 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 as opposed to the brokers or brokerage houses actually executing the trades.
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