I'm very new to the detailed concepts of stocks and trading, so please correct me if this question is flawed. I know stocks are traded through exchanges, such as the NYSE, however I understand that most if not all of this trading is done by brokers. My question is, can I buy stocks directly through the exchange? If so, how can it be done? For example, say I want to buy 5 shares of a company, can I put in a buy order for those shares and then pay whoever sells them to me? I realize that this mostly likely isn't how it works, I'm just curious how it does work.
You must understand that:
- the need for brokers developed long before the invention of computers, much less that of the Internet, and
- the exchange was/is a place for people to meet and trade stocks.
So, if you -- the prospective buyer -- are in Waukegan, do you take the train all the way to New York City just to buy 100 shares of stock? No. That would be absurdly expensive. So, you hire an agent in NYC who will broker a deal for you in the exchange.
Fast forward 100 years, to the time when instant communications is available. Why do we now still need brokerages, when the Exchanges could set up web sites and let you do the trading?
The answer is that the Exchanges don't want to have to develop the accounting systems to manage the transactions of hundreds of thousands of small traders, when existing brokerage firms already have those computerized processes in place and are opening their own web sites.
Thus, in 2017 we have brokerage firms because of history.