The life of an order
- Instruction
You specify the instrument, direction, quantity and order type. At this point nothing has happened in the market.
- Validation
The broker checks that you hold enough settled cash, or the security to sell, and that the instrument and order type are permitted on your account.
- Routing
The order goes to a venue — an exchange, a market maker or an internal book. Where it is routed can affect the price you receive.
- Execution
A counterparty is matched. It may come as one fill or several at different prices, and for a limit order it may not come at all.
- Confirmation
You receive the executed quantity, the price or average price, the fees and the execution time. This is the first point at which the trade is a fact.
- Settlement
Cash and securities actually change hands, typically one or two business days later. Ownership and the right to withdraw proceeds follow settlement, not execution.
Execution fixes the price; settlement moves the assets. Selling to meet a payment deadline means working back from the settlement date, not the day you press sell.
Order types
| Type | Behavior and trade-off |
|---|---|
| Market order | Execute now at the best available price. Near-certain to fill; the price is not fixed in advance. In a fast-moving or illiquid market the fill can land far from the last quoted price. |
| Limit order | Execute only at your stated price or better. You control the price, not the execution. It may fill partially, or never. |
| Stop order | Becomes a market order once the trigger price trades. Used to cap a loss, though the fill can land well below the trigger if the price gaps. |
| Stop-limit order | Becomes a limit order at the trigger. It guards against a poor fill at the cost of possibly not filling at all — precisely when you wanted out. |
| Good-for-day / good-till-cancelled | How long the order stays live. A long-dated resting order can execute on news you have not seen, so review open orders regularly. |
If a price gaps down overnight or during a halt, a stop order triggers and executes at whatever the market offers on reopening, which can be well below the stop price. A stop limits exposure in ordinary conditions. It does not cap losses in a crisis, which is when people expect it to.
Spread and slippage
Quoted prices come in pairs. The bid is what buyers will pay; the ask is what sellers want. The gap is the spread, and it is a real cost: buy at the ask, sell immediately at the bid, and you are down by the spread before any fee.
The single price an app displays is usually the last traded price or a mid-point. It is neither the price you will buy at nor the price you will sell at. For widely traded instruments the spread is slight; for thinly traded ones it can be wide.
Slippage is the difference between the price you expected and the price you got. It grows when the market moves between instruction and execution, when the order is large relative to available volume, or when liquidity is thin.
Hours and liquidity
Exchange-traded instruments trade during defined sessions. Orders placed outside them queue until the next open, so overnight news reaches the opening price before you can act on it.
- The open and the close are the most volatile periods, as overnight information is absorbed and funds rebalance.
- Extended-hours trading, where offered, carries thinner volume and wider spreads, and not all order types are accepted.
- Trading halts suspend an instrument on news or an unusual price move. You cannot trade during a halt, and the reopening price can sit far from the last one.
- Liquidity varies by instrument. A major index ETF and a small company's shares behave very differently when you try to sell size quickly.
What a trade costs
Headline commission is often the smallest part. The full cost includes items that never appear as a line on a confirmation.
| Cost | Where it shows up |
|---|---|
| Commission | An explicit per-trade or percentage charge, shown on the confirmation. Increasingly zero on simple equity trades, which does not make the trade free. |
| Spread | Implicit. Paid on entry and on exit, never itemized. Usually the largest cost on a small trade. |
| Exchange and regulatory fees | Small per-transaction charges, sometimes passed through and sometimes absorbed. |
| Currency conversion | A spread or fee on an asset priced in another currency, applied on the way in and the way out. |
| Payment for order flow | Where permitted, a broker may be paid to route orders to a particular venue. It can affect the price you receive, which is why execution quality matters even at zero commission. |
| Taxes on transactions | Some jurisdictions levy a duty on purchases of certain securities. |
Estimating the real cost of a trade
Add the explicit charges on the confirmation to half the spread on entry, half on exit, and any conversion cost. Compare that total against the size of the position, not the value of the portfolio. On a small trade in a thinly traded instrument it can take a noticeable share of the amount invested — the argument for fewer, larger trades.
Four things are worth locating in a broker's published pricing before you open an account: the commission schedule, the order types supported on your account type, the execution venues used, and the standard settlement period for each instrument. The last one decides when sale proceeds can be withdrawn.
Frequently asked questions
Why did my order fill at a different price than I saw?
The displayed price is usually the last trade or a mid-point, not the executable bid or ask. Add any market movement between instruction and execution, and a market order can fill noticeably away from what you saw.
Market order or limit order?
A market order prioritizes certainty of execution; a limit order prioritizes certainty of price. For thinly traded instruments or fast markets, a limit order protects against a poor fill — at the risk of not executing.
What does a partial fill mean?
Only part of your quantity was matched. The remainder stays live or expires, depending on the order's duration. You may hold a smaller position than intended and still owe commission on what executed.
Why can I not withdraw the proceeds of a sale immediately?
Execution fixes the price but settlement moves the money, typically one or two business days later. Withdrawals require settled cash, so a sale made to meet a deadline has to allow for that period.
Will a stop order protect me overnight?
Only in part. A stop triggers when the stop price trades, but if the price gaps down between sessions the resulting order executes at whatever the market offers on reopening, which can be well below the stop. It limits exposure in ordinary conditions rather than in a crisis.
