Key takeaways
- Companies raise money by selling shares in the primary market, such as an IPO; afterwards investors trade those shares with each other in the secondary market.
- Individual investors do not connect to an exchange directly: a broker routes the order to an exchange, a market maker, an electronic network or its own inventory.
- Prices are set by the orders of buyers and sellers; the quote shows the best bid and ask, and a market order fills at or near them, not necessarily at the last traded price.
- Brokers have a duty to seek the best execution reasonably available for customer orders.
- Most US stock trades settle one business day after the trade date, the T+1 cycle that took effect in May 2024.
Pressing "buy" in a trading app feels instant, as if you were plugged straight into the market. You are not. Investor.gov, the SEC's investor education site, makes the point bluntly: many investors who trade online assume they have a direct connection to the securities markets, but they don't. Between your tap and your shares sits a chain of firms, rules and prices, and knowing the chain explains most of what you see on a trading screen.
Two markets: where shares are born and where they change hands
Wikipedia's article on the secondary market draws the distinction:
- The primary market is the initial sale of a security by its issuer, such as shares sold in an initial public offering; the proceeds go to the issuer.
- The secondary market is all the trading after that, where one investor sells to another, with little impact on the company that issued the shares.
Wikipedia names stock exchanges such as the New York Stock Exchange and Nasdaq as the most visible secondary markets, and they are the subject of the rest of this guide.
The cast
| Participant | Role |
|---|---|
| You | Decide what to buy or sell and what kind of order to use |
| Broker | Holds your account, takes your order and decides where to send it |
| Exchange | A regulated marketplace, such as the New York Stock Exchange or Nasdaq, that matches buy and sell orders |
| Market maker | A firm that stands ready to buy or sell a stock at publicly quoted prices |
| Electronic communications network (ECN) | A system that automatically matches buy and sell orders at specified prices |
| Regulators | The SEC writes and enforces securities law; FINRA oversees broker-dealers |
What happens to your order
According to Investor.gov, your broker may send your order to:
- The exchange where the stock is listed, or another exchange;
- A market maker, which may fill it from its own quotes;
- An ECN, especially for limit orders; or
- Its own inventory, a practice called internalisation.
Some market makers pay brokers for sending them orders, a practice called payment for order flow, which Investor.gov describes as perhaps a penny or more per share. Whatever route is used, brokers have a duty to seek the best execution reasonably available for their customers' orders, and to weigh the possibility of a better price against the extra time it might take.
How the price is set
There is no single official price for a stock. At any moment there is:
- the bid, the highest price someone is currently willing to pay, and
- the ask, the lowest price someone is currently willing to accept.
The gap between them is the bid–ask spread. A trade happens when a buyer and seller agree, and a headline "price" may simply be the last trade.
Investor.gov stresses two consequences. A market order generally executes at or near the current ask (for a buy) or bid (for a sell), and the last-traded price is not necessarily the price a market order will get. And because quotes cover only a specific number of shares and prices move, you may not receive the price you saw on screen. That is the whole case for choosing an order type deliberately, the subject of market orders versus limit orders.
Wikipedia's article on market trends sums up what sits behind every price change: the price of an asset such as a stock is determined by supply and demand.
When the trade actually completes
Execution is not the end. The trade must settle: cash and shares must actually change hands. FINRA explains that, as of May 2024, the standard settlement cycle for most US securities is the next business day after the trade, T+1. Sell on Tuesday and the trade settles on Wednesday. T+1 settlement explains why that date matters, especially in a cash account.
When the market is open
The New York Stock Exchange's core trading session runs from 9:30 a.m. to 4:00 p.m. Eastern Time on business days, with early and late sessions on some of its markets and closures on market holidays. Trading outside the core session works differently and carries its own risks, covered in stock market hours.
Seeing it in practice
Reading about order routing is abstract until you place orders and watch them fill. Learn to Trade Stocks Beginner lets you practise market, limit and stop orders with a virtual balance and see positions and profit and loss update, though, as a simulator, it cannot reproduce real routing or real fills. It is one of our education apps, and the investing basics hub lists the related guides, starting with what a stock is.
Good to know
Frequently asked questions
How does the stock market work, simply?
Who sells me the shares when I buy?
Why didn't I get the price I saw on the screen?
What is payment for order flow?
Sources
- Executing an Order (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
- Types of Orders (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
- Understanding Settlement Cycles (opens in a new tab)FINRA — accessed
- Holidays and Trading Hours (opens in a new tab)New York Stock Exchange — accessed
- Secondary market (opens in a new tab)Wikipedia — accessed
- Market trend (opens in a new tab)Wikipedia — accessed
About the author
Reign Creative LLC — The independent app studio that builds the apps covered on this site and publishes every article here. On Google Play it publishes as Reign Collective Apps.
We use AI tools to help research, draft and edit our articles. Each article lists the sources its factual claims rely on, and details about our apps come from their live Google Play listings. No article on this site has been reviewed by an independent expert unless the reviewer is named on it.
No person at Reign Creative LLC has read this article in full. It was published after automated checks and an AI editorial review, which are described in our editorial policy and are not the same as a person reading every sentence.
Spotted an error? Tell us — how corrections are handled is set out in our editorial policy.