When we begin to start thinking about online stock trading software, the issues we need to consider are very different from those we looked at for online forex trading, for one very simple reason – when we trade stocks and shares online, we do not have to worry about the issues of trading against our broker, which gives us a relatively level playing field from the start. This is very different to the forex market where prices are manipulated, quotes delayed, and platforms frozen, whilst behind the scenes our broker profits accordingly. So how does the stock market work and what do we need to consider when looking for our online stock trading software ?

Stock market software

The stock market is of course very different to the forex market in that all trading is conducted through a central exchange, such as the London Stock Exchange or the New York Stock Exchange, and as such the stock market software that we need for our online trading is also very different as a result. As such, all stocks and shares are traded in a tightly regulated market, where buyers and sellers are matched accordingly, with the central exchange standing as guarantor to all the trading activity that takes place between the various counter parties. At the centre of the exchange sits the market makers, who are mandated to create a market for the particular share or stock you are trading, and are therefore obliged to buy when you wish to sell, and to sell to you when you wish to buy. Whilst online share trading would appear to be a market where you are trading on equal terms, those of you who have followed my market analysis and commentaries for some time, will be very familiar with my views on the market makers, who, due to their privileged position, are able to manipulate stock markets around the worlon a daily basis. The market maker forex broker is a paragon of virtue in comparison!!

Stock market – market makers

The market makers who make the market in the regulated exchanges we know so well, are the banking giants such as JP Morgan, Deutsche bank and Goldman Sachs, who generate billions a year from their market making activities, deriving their profits from the difference between the bid and the offer, or the spread. On the London Stock Exchange the largest blue chip stocks are all traded through an automatic system, which until recently was TradElect. However, following a series of embarrassing system failures in volatile markets, as well as being considered slower than its competitors, such as Chi-x, the LSE has recently acquired a controlling stake in Turquoise, a large volume dark pool trading platform, which is now being rolled out across the professional markets. All smaller shares are traded through the designated market making banks in the usual way.

In the US, the market makers role is slightly different, and for both the NYSE and AMEX ( who have recently merged their activities), these are referred to as designated market makers, who were originally known as specialists, and act as the official market maker for a given security. Whenever there are short term imbalances in terms of supply and demand, the market makers are mandated to take up the slack in the market, which is where the insider dealing becomes such a powerful tool for them to generate vast profits, from being able to see both sides of the market as a result.This gives the market maker a unique advantage, as much like the forex market broker, they are able to see both sides of the market and trade accordingly. In addition in the equity markets, these powerful insiders, use their inside information and the ongoing news, to manipulate the markets daily, allowing them to sell off excess stock when required, and sending markets lower to shake out positions and more supply when they are short of stock. In order to do this they use each and every piece of news to send markets higher or lower as required, allowing them to buy or sell accordingly. As trader, we are able to see them at work by analysing the price action against the associated volume on the candle chart. If we see high volume and no increase in price, then the market makers are probably selling into an overbought market. Similarly, if we see high volume and no decrease in price, then the market makers are buying and we should follow them into the market!

Volume spread analysis

As stock traders we can use this knowledge by using volume spread analysis to see when the market makers are buying or selling, and based on our analysis of the trading volume, coupled with an analysis of the candle chart, gives us a clear trading signal as to whether the market makers are buying or selling, and more importantly, whether they are buying in preparation to move the market higher, or selling in advance of a fall.

This is one of the greatest advantages of trading in stocks or equities where we have volume reported on our online trading software, or platform. This is a key trading indicator, as it provides a wealth of information to us as traders, and in particular gives us a view on how the markets are manipulated each and every day by the market makers, and is therefore one indicator that you must have in the best stock market software. An analyse of the candle chart, coupled with the price action on the chart, and a knowledge of how the stock market really works, gives us a unique trading advantage in online trading in the equity markets.