Before we discuss the fine points of selecting stocks to trade, let's take a deeper look at the fundamentals of how trades are placed in the market. While you may be tempted to skip this chapter, I strongly recommend that you continue reading. In my opinion, the 50 percent failure rate in this industry is due at least in part to the fact that most people don't truly understand the basics of trading before they enter into this high-stakes activity. I don't want you to be part of that 50 percent, so I advise you to pay careful attention to the information shared in this chapter.
Returning to our earlier car analogy, you can't race until you know how to drive a car. The purpose of this chapter is to prepare you to learn how to drive. Here, I will share with you all the possible vehicles of execution. Although there is only one primary execution system, I want to review all three, because it's important to know how they came into play to accurately understand them at present.
There is no one specific way in which trades are executed on the Nasdaq. In fact, there are several methods by which shares are bought and sold. One of them is called ACT trade.
ACT, which is an acronym for Automated Confirmation of Transactions, was the original system used by securities dealers. It's basically a phone-in wire service; in other words, securities dealers directly call other dealers and conduct trades over the telephone. See Figure 4.1.