How a Trade Actually Gets Executed

You click buy. Here is what happens in the next 0.3 seconds.

8 min read Intermediate

"You press buy. The money leaves your account. Shares appear. Simple. But between your click and the shares appearing, something interesting happens — and understanding it makes you a more informed investor."

For educational purposes only. Nothing in this chapter is financial advice. All figures are illustrative examples. Tax rules, account types, contribution limits, and regulations differ by country and change over time. Always verify current rules with official government sources or a qualified financial adviser before making any investment decisions.

Order Types: What You Actually Choose

Before clicking buy or sell, you choose an order type. This is more important than most beginners realise — the wrong type at the wrong time means you pay more than you should, or your order never fills.

Order Type	What it does	Risk
Market order	Buys/sells immediately at the best available price. Guaranteed to fill — not guaranteed at a specific price.	Slippage — you may pay more or receive less than the last quoted price, especially in fast markets.
Limit order	Sets a maximum price to buy (or minimum to sell). Only fills at your price or better.	May not fill at all if the price never reaches your limit.
Stop-loss order	Automatically sells when price falls to your trigger level. Protects against large losses.	Becomes a market order when triggered — can fill significantly below your stop price in a fast-moving market.
Stop-limit order	Stop-loss that becomes a limit order (not market) when triggered. More control.	May not fill at all if price gaps through your limit.
GTC (Good Till Cancelled)	Order stays active until filled or you cancel it. Works across sessions.	Easy to forget about — check your open orders regularly.

What Happens in the 0.3 Seconds After You Click Buy

You click buy. Here is what actually happens:

Your order is received by your broker's system and validated — account balance, share availability, order parameters.

The broker routes your order to an exchange or market maker. Under UK/EU regulation (MiFID II), brokers must achieve "best execution" — the best available price.

The order reaches the exchange's matching engine — a computer system that pairs buy and sell orders. It matches your buy with the cheapest available sell order.

The trade executes. Both parties receive confirmation. The time-stamped trade is recorded.

Settlement begins. This is the process of actually exchanging money for shares. In the UK and US, settlement takes T+1 (one business day after the trade date). Until settled, the shares are in transit.

The Bid-Ask Spread

Every share has two prices: the bid (what a buyer will pay) and the ask (what a seller will accept). The difference is the spread. You always buy at the ask (higher) and sell at the bid (lower). The spread is an immediate cost every time you trade.

Example: a share with a tight spread vs a wide spread

FTSE 100 stock (liquid)

Bid: 500.0p
Ask: 500.2p
Spread: 0.2p (0.04%)
Tight — low cost to trade

Small-cap stock (illiquid)

Bid: 48.0p
Ask: 52.0p
Spread: 4.0p (8%)
Wide — expensive to trade

The spread on a small-cap stock can eat a significant percentage of your investment. This is why small-cap and penny stocks are far more expensive to trade than large-cap stocks, even if the broker charges no commission.

Questions People Actually Ask

What is slippage?

Slippage is the difference between the price you expected and the price you actually received. It happens most often with market orders in fast-moving or illiquid markets. If the last quoted price was 500p but by the time your market order reaches the matching engine the best available sell is 502p, you pay 502p — 2p of slippage. Limit orders eliminate slippage risk but introduce the risk of not filling at all.

What does T+1 settlement mean?

T+1 means "trade date plus one business day." If you buy shares on Monday, the trade settles on Tuesday — money leaves your account and shares officially transfer. The US moved from T+2 to T+1 in 2024. The UK plans to follow. Until settlement, you have a contractual right to the shares but do not formally own them. For most investors, this distinction is invisible in practice.

What is a market maker?

A market maker is a firm (typically a bank or specialist company) that continuously quotes bid and ask prices for a security, standing ready to buy or sell. They provide liquidity — ensuring there is always someone to trade against, even if no other investor wants to take the other side. Market makers earn the spread as their compensation. In exchange, they absorb the risk of holding inventory.

Why did my limit order not fill?

A limit order only fills if the market price reaches your specified price. If you place a buy limit at 495p on a share trading at 500p, the price must fall to 495p before your order fills. If it never does, your order sits unfilled (or expires at end of day if it is a day order). This is the trade-off: control over price, at the cost of execution certainty.

What is payment for order flow?

Some brokers (particularly in the US) receive payment from market makers for routing your orders to them rather than directly to the exchange. This can result in slightly worse prices for you. In the UK and EU, payment for order flow is banned under MiFID II. In the US, it remains common and is disclosed in broker documentation.

Key Takeaways

Order types matter: market orders guarantee execution but not price; limit orders guarantee price but not execution.
When you click buy, your order is routed to a matching engine that pairs it with the cheapest available seller — the whole process takes milliseconds.
Settlement takes T+1 (one business day) — money and shares formally change hands the next business day after the trade.
The bid-ask spread is an invisible cost on every trade — tighter for liquid large-cap stocks, wider for illiquid small-cap and penny stocks.
Stop-loss orders become market orders when triggered — in fast-moving markets, they can fill significantly below your intended price.