Lifecycle of a trade


Can anyone help explain the life cycle of a trade pls?


I don’t know first hand, but I found this elsewhere online:

  1. An investor (could be an invdividual like you or me, could be a professional investor such as a hedge fund) first gets a quotation for the stock. Nowadays this is done via the Internet (you and me) or over a dedicated electronic system with a terminal in the fund’s office (hedge fund guy.)

  2. Next step is to decide what kind of order to place. There are two basic types: ‘market orders’ are orders to buy the shares at the best available price at the moment the order reaches the trading destination (more on that in a sec) and ‘limit’ orders specify a maximum price you are willing to pay; if the prevailing price when the order reaches the trading destination is above that your order won’t be filled.

  3. The ‘trading destinations’ take several possible forms. Exchanges are generally physical places with folks running around, waving arms, pointing and scribbling while they fill orders that have come from the folks described above. But there are also electronic trading destinations such as Nasdaq and ‘ECNs’ like INET, Brut, Archipelago and others in which orders are simple entered into an electronic ‘order book’ and whenever a buyer’s price and a seller’s price match, a trade is made.

  4. When you, or I, or the hedge fund guy want to trade we have to give our order to a brokerage firm and they will represent our order in one of the venues described above. They try to match our order with someone else willing to sell the stock to us (in my example we’re using a buy order, so a seller is on the other side of the trade.)

  5. The brokerage firm will also handle whats called the ‘settlement’ of the trade. The back office of our broker will take care of paying the seller’s brokerage firm for the stock, and will get the shares from the seller’s brokerage firm for deposit in our account. This happens on the so-called ‘settlement date’, which is generally three business days after the trade date.

We now own the stock.