Trading system in stock exchanges 

A stock exchange is a market for trading in securities. Although stock exchange is not an ordinary market; it is a market with certain peculiar features. In a stock exchange, sellers and buyers do not meet directly, but interact with each other for their trades. The capitalist (buyers and sellers of securities) trade via brokers who are members of a stock exchange. In stock exchanges, member brokers interact and trade through a networked computer system and trading procedures are fully automated. Stock exchange trading takes place in two stages; in the first phase, the broker performs their sell or buys orders on behalf of their clients. In the next phase, the cash and securities are exchange. The exchange of securities is executed at the clearing house of the stock exchange and the depositories. Further stock exchanges are markets where the prices of the items traded vary constantly. This fluctuation in security prices leads to speculative activities in the stock exchanges.

Trading System 

The system of trading persisting in stock exchanges for many years was referred as floor trading. During that time, trading took place through an open outcry system on the ring or trading floor of the exchange during prescribed trading hours.

In the new electronic stock exchanges, floor trading is replaced with a new system of trading known as screen-based trading, which have a fully automated computerized mode of trading. In this new system, computer screen and distant participants have replaced the trading ring. Now brokers can trade with each other through the computer network. The member broker can install trading terminals  anywhere in the country. A large number of  geographically separated participants can trade at the same time at high speeds from their respective locations. The screen-based trading systems are of two modes:

1.    Quote driven system

2.    Order driven system.

In the quote driven system, the dealer in a particular security, inputs two- way quotes into the system:

(a) Offer prices which is selling price.

 (b) Bid price which is buying price.

The market participants then place their orders on the offer-bid quotes. Based on certain rules, these are then automatically matched by the system.

Under the order driven system, with the brokers, clients place their sell and buy orders. These are then entered into the system. The sell and buy orders are automatically matched by the system as per predefined rules.

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