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Today's Market Players: A User's Guide

It's a brave new world for investors. The days of shares "changing hands' are long gone. Now it is man and machine, and sometimes, man versus machine. Trading is super fast, simple and cheap.
Daily stock trading volume has exploded four-fold in the last decade and often tops 8 billion shares a day.

Meanwhile, the market has become fragmented, increasing volatility and decreasing liquidity. Regulators have struggled to keep up, leaving the system rickety and unwieldy.



The average investor has little idea about how trading works and the players and technologies involved along the way. In some case, its a long, strange trip from point A to point B and it's not always the most direct, efficient or fair way to go.

Click ahead to learn about the world of financial trading.


The Customer



People of all incomes and occupations play the stock market to varying degrees, and they all either use an Internet trading platform or work directly with a person at a brokerage firm.

They have some tough competition in the form of asset managers, licensed, tainted MBA types who manage mutual funds, pension funds and investment accounts.

And then there are the professional traders. They typically work for hedge funds, banks and Wall Street firms and represent high net-worth individuals. In recent years, more of this has been done for firms' proprietary trading desks that make money on trading profits rather than commissions.

The Trading Community

Whether it is the traditional full service model of Edward Jones, discount firms like Charles Schwab or Scottrade, or online players such as ETrade or Ameritrade, these firms buy and sell stocks for customers and charge a commission.

Of course, some firms also trade for their own accounts, which makes them broker-dealers.

The largest are subsidiaries of the big bank holding companies, such as Bank of America/Merrill Lynch, Citigroup, Morgan Stanley and Goldman Sachs.

Market markers serve something of a middle-man role. They quote prices to both buyers and sellers of stocks (and other financial instruments), and profit from the difference, the spread, between the two orders. There are dozens of market makers and even some the biggest—Getco, for instance, may not be well known.

Major Cash Exchanges

Trades may come from a lot of places be transmitted in variety of ways but technically they have to trade somewhere and that is often an exchange. Forty years ago, there was only one major exchange, the New York Stock Exchange, and a clutch of regional ones (Boston, Philadelphia, American, Pacific).

The Nasdaq all electronic, screen-based exchange was founded in 1971, providing an alternative to the open outcry, human floor-based trading of the NYSE. It has become the busiest exchange in the world. Both the NYSE and Nasdaq have merged with or acquired other exchanges in recent years.

Options Exchanges

These exchanges allow investors to trade options, one of the original financial derivatives. It is an option to buy or sell an asset, including securities such as stocks.



Founded in 1973, the CBOE was the first exchange to list standardized, exchange-traded stock options. The International Securities Exchange, or ISE, was the first all electronics options exchange in the US when it launched in 2000. The Nasdaq Options Market, launched in 2008, handles only US options.

Alternative Trading Systems

These trading venues may be unknown to many but they have become powerful players in the marketplace. Electronic Communication Networks, ECNs, are the most similar to exchanges but are prohibited from listing stocks. The first opened in 1998. (BATS and DirectEdge started as ECNs.)



An ECN is essentially a computer system designed to trade stocks (and currencies) outside of an exchange. They are popular among trading firms because they are cheap and fast. Matching networks are a version of ECNs.

Dark pools, or dark liquidity, are used by traders who want to trade large blocks of stocks without it being noticed by others in the marketplace. Neither the price nor the identity is displayed during the transaction.

The voice-brokered, third-party matching system involves old fashioned, block traders matching buy and cell orders directly.