From your tap to the exchange

So far the market has been one order book. The real US stock market is a network: your broker, firms that buy orders from brokers, more than a dozen exchanges, dozens of private trading venues, a public feed of prices, a clearinghouse, a central depository, and a stack of rules tying them together. When you press Buy, your order passes through several of them in well under a second, and the paperwork behind it finishes the next business day.

None of this is visible in a trading app, which is part of the design: it is supposed to feel like one button. But who handles your order decides what price you get, who earns money from it, and what you actually own afterwards. Follow one order through below, then read the details.

Your broker

You cannot send an order to an exchange yourself. Only members of an exchange can, so you go through a broker-dealer: the company behind your trading app. Before your order leaves, the broker checks it. Do you have the cash or buying power? Is the account allowed to trade this? Is the order sensible, or did you type an extra zero? Many brokers also turn market orders into limit orders with a "collar" a few percent from the current price, so a market order can never fill at a wildly wrong price in a sudden move.

The broker then decides where the order goes. That decision is called routing, and brokers have a legal duty of best execution: they must use reasonable diligence to get you the most favourable terms available, which mostly means price, but also speed and likelihood of filling.

Where orders go

There are three broad kinds of place your order can be filled.

Exchanges. NYSE, Nasdaq, Cboe and others (including IEX and newer entrants) run public order books like the one in chapter 2. Their best prices are displayed to everyone, and each one is a protected quote.

Wholesalers. Most orders from retail investors in the US never touch an exchange. Large brokers send them to a small number of market-making firms, often called wholesalers, that fill the orders themselves from their own inventory. Wholesalers want retail orders because, on average, individual investors are not trading on information the market does not already have, so filling them is a predictable, low-risk business. They pay brokers for the flow, which is called payment for order flow (PFOF), and they typically fill the order at a slightly better price than the best public quote, called price improvement.

Alternative trading systems, or dark pools. Private venues, mostly run by banks and brokers, where institutions can trade large blocks without displaying their orders. A pension fund buying a million shares does not want the whole market to see it coming, so it rests orders in places where nobody can see them, and trades usually happen at the midpoint of the public quote.

Taken together, wholesalers, dark pools and other off-exchange trading account for close to half of all US stock volume in recent years. Every one of those trades still has to be reported publicly within seconds, and every one is priced off the public quotes from the exchanges.

The NBBO: the price everyone must respect

With a stock trading in so many places, which price is "the" price? US rules (Regulation NMS, in force since 2007) answer that with the national best bid and offer, or NBBO: the highest bid and the lowest ask across all exchanges at that moment. The order protection rule forbids trading through it. If one exchange shows shares for sale at $50.04, nobody can fill your buy at $50.05 somewhere else while those shares are still there. That is what keeps a fragmented market behaving like one.

The NBBO is calculated and broadcast by public data feeds called the securities information processors (SIPs), the consolidated tape. Professional traders also buy direct feeds from each exchange, which arrive faster than the consolidated one. The gap is tiny in human terms, often well under a millisecond, but it is the reason high-speed trading firms put their computers in the same buildings as the exchanges' engines.

Is payment for order flow good or bad for you?

It is both, and reasonable people disagree. The case for it: wholesalers compete for retail orders, they usually give price improvement, and PFOF helped make commission-free trading possible. The case against: your broker is being paid by the firm on the other side of your trade, which is a conflict of interest, and the price improvement is measured against a public quote that wholesaler activity itself may keep wider than it would otherwise be. The UK and Canada ban the practice for stocks, and the European Union banned it in 2024, with the last national exemptions ending in mid-2026. In the US it remains legal and disclosed: every broker publishes quarterly reports (under SEC Rule 606) showing where it sends orders and how much it is paid.

For a long-term investor buying a few hundred dollars of a large stock, the amounts on either side are fractions of a cent per share. For an active trader, especially in options, where payments per contract are much larger, they add up.

After the trade: clearing

Your app says "Filled" within a moment. At that point, nothing has actually changed hands. There is a contract: your broker owes cash, and the seller's broker owes shares. Turning that promise into reality is called clearing and settlement, and in the US it runs through one organisation, the Depository Trust and Clearing Corporation (DTCC).

Trades are sent to DTCC's clearing arm, the National Securities Clearing Corporation (NSCC). NSCC steps into the middle of every trade as the central counterparty: the buyer's broker now owes NSCC, and NSCC owes the seller's broker. If any broker fails before settling, NSCC still completes the trades, using deposits it collects from all its members for exactly that purpose. That is why you never have to worry about whether the anonymous seller of your 10 shares will deliver.

The other thing a clearinghouse does is netting. A big broker might buy 2 million shares of a stock for some customers and sell 1.9 million for others on the same day. Rather than move all those shares back and forth, NSCC nets everything down to one number per broker per stock: this broker receives 100,000 shares, and pays the net cash. Netting cuts the number of shares and dollars that actually have to move by the large majority.

Settlement: T+1

Settlement is the moment shares and cash actually swap. Since May 28, 2024, US stocks settle on T+1: one business day after the trade date. (It was T+2 before that, T+3 before 2017, and T+5 a few decades ago, when paper certificates were carried across lower Manhattan.) On settlement day, the Depository Trust Company (DTC), another part of DTCC, moves the shares from the seller's broker's account to your broker's account on its books, and the cash moves the other way at the same time, a principle called delivery versus payment.

Your app usually shows the shares as yours immediately, and most brokers let you sell them before settlement. In a cash account there are limits on using unsettled proceeds to buy again, which is the main way settlement timing shows up for ordinary investors.

What you actually own

Almost no one holds stock certificates any more. Nearly all US shares are held at DTC, registered in the name of DTC's nominee, a partnership called Cede & Co. DTC's records say how many shares each broker holds. Your broker's records say how many of those belong to you. This arrangement is called holding in street name, and it is what makes trading fast and cheap: shares move between brokers as entries on DTC's books, and between customers as entries on a broker's books.

You are the beneficial owner: you get the dividends, the votes (passed through by your broker) and the gains and losses. If you want your name on the company's register directly, you can ask your broker to move the shares into the Direct Registration System, held by the company's transfer agent, but almost nobody does.

Fractional shares go one level further. Exchanges trade whole shares, so when you buy $25 of a $500 stock, your broker buys whole shares and records fractions of them for customers on its own books. Your fraction usually cannot be moved to another broker; it has to be sold.

What if your broker fails?

Brokers are required to keep customers' securities and cash separate from their own (the SEC's customer protection rule), so in a failure the customers' assets should be there to return. If some are missing, the Securities Investor Protection Corporation (SIPC) steps in to restore customer accounts up to $500,000 each, including up to $250,000 of cash. SIPC does not protect you from the market: if your shares fall in value, that loss is yours. It protects you from the broker losing or misusing what is in your account.

The short version

Your tap becomes a checked order at your broker, which routes it to a wholesaler, an exchange or a dark pool. It fills at or better than the best public price in the country, the trade is reported to everyone, the clearinghouse guarantees it and nets it with everything else, and the next business day the depository moves shares and cash. What you end up owning is an entry in your broker's records, backed by an entry in the depository's. Next: what makes the price itself move.