Stocks ready to build on gains

U.S. stocks were set to rise at Friday's open, as momentum from the previous session's rally held up and oil prices rose.

At 8:40 a.m. ET, Dow Jones industrial average, S&P 500 and Nasdaq 100 futures were higher.

Futures measure current index values against perceived future performance and offer an indication of how markets may open when trading begins in New York.

U.S. stocks climbed Thursday after a government debt auction elicited solid demand, tempering fears that borrowing costs would rise. The major gauges all added about 1%.

Len Blum, managing director for Westwood Capital LLC, said there is still a lot of "fundamental weakness" in the economy, without much of a tangible reason to rally aside from investor eagerness.

"I don't see a lot of reason for the economy to rebound in any kind of dramatic way," said Blum. "[But ] no one wants to miss the rally, so investors are looking for a reason to be optimistic."

Economy: Trading on Wall Street has been volatile recently amid uncertainty about the economic outlook.

Investors will focus on reports on gross domestic product, regional manufacturing and consumer sentiment.

The government said first-quarter gross domestic product fell at an annual rate of 5.7%. This is close to expectations of a 5.5% annual rate drop in the first quarter, according to a consensus forecast from Briefing.com. The initial reading last month put the annual rate of decline at 6.1%.

Companies: After U.S. markets closed Thursday, Dell (Dell, Fortune 500) reported a drop in sales and earnings. The company said a slowdown in PC sales pressured its bottom line.

Activist investor William Ackman's quest to overhaul the board of Target (TGT, Fortune 500) fell flat at the retailer's annual shareholder meeting. None of Ackman's candidates for the board won a seat.

World markets: Stocks around the world rose on the back of Wall Street's rally. In Japan, the Nikkei added nearly 1%. European markets were all higher in morning trading.

Oil and money: Crude prices kept on rising as traders bet that an economic recovery would lead to a pick up in demand. In morning trading, the price of oil rose $1.12 to $66.20 a barrel. The dollar fell against major international currencies, including the yen, the euro and the British pound.

How Stock Markets Work

If you'd like to buy a share of stock in any publicly traded company you'll most likely need the services of a brokerage firm. Though it's possible to buy and sell shares of stock on your own, there are some practical and legal problems with this approach. The securities industry is highly regulated, so you can't just hang a shingle and start selling stocks to the general public, unless you're properly registered and licensed.

When you want to buy groceries, you go to the grocery store. When you want to buy a sofa, you go the furniture store. And when you want to buy stocks, you need to do business with a brokerage firm.

A brokerage firm is a dealer of stocks and other securities that acts as your agent when you want to buy or sell stocks.

Most trading of stocks happens on a stock exchange. These are special markets where buyers and sellers are brought together to buy and sell stocks. The best known stock exchanges are the New York Stock Exchange and the American Stock Exchange.

Besides these two national exchanges, there are many smaller regional stock exchanges, such as the Pacific in Los Angeles, the Philadelphia, the Boston, the Cincinnati, and the Chicago. Some small companies are listed only on a regional exchange, while some NYSE and AMEX companies are listed on these smaller exchanges, as well, to help trades happen faster and cheaper for investors.

When most people think of a stock exchange, they picture a scene of frantic activity, with traders in funny-looking jackets simultaneously jostling for position, shouting commands, making strange hand signals, and writing up orders. Behind this frenzied spectacle, however, is a methodical and organized system of trading, in which the price of any stock is set purely by rule of supply and demand in an auction setting. Specialists help match buyers and sellers, but shares are always sold to the highest bidder.

From the perspective of an investor, buying and selling stocks seems pretty simple. If you use a full-service broker, just call her up on the phone and place an order for 100 shares of Coca-Cola. Within a few minutes, you'll receive a confirmation that your order has been completed, and you'll be the proud new owner of Coca-Cola's stock.

Behind the scenes, however, there's a lot of action that takes place between your order and the confirmation. Here's what has to happen:

1. You place the order with your broker to buy 100 shares of the Coca-Cola Company.
2. The broker sends the order to the firm's order department.
3. The order department sends the order to the firm's clerk who works on the floor of the exchange where shares of Coca-Cola are traded (the New York Stock Exchange).
4. The clerk gives the order to the firm's floor trader, who also works on the exchange floor.
5. The floor trader goes to the specialist's post for Coca-Cola and finds another floor trader who is willing to sell shares of Coca-Cola.
6. The traders agree on a price.
7. The order is executed.
8. The floor trader reports the trade to the clerk and the order department.
9. The order department confirms the order with the broker.
10. The broker confirms the trade with you.

That's how a traditional stock exchange works, but much of the action that takes place when you buy or sell a stock is being handled with the assistance of computers. Even if you bought a stock that trades on a stock exchange, your order may be executed with little or no intervention by humans. You can log on to a brokerage firm's Website, enter an order, have the trade be executed, and receive a confirmation all within sixty seconds or less.