FINRA Explains How Online Stock Trading Works
"Many investors who trade through online brokerage accounts or mobile apps assume the next stop after placing an order is a direct connection to the securities markets. Not quite."
FINRA Investor Insight
"Many investors who trade through online brokerage accounts or mobile apps assume the next stop after placing an order is a direct connection to the securities markets. Not quite."
FINRA Investor Insight
In an Investor Insights article, FINRA described how trades are made through online brokerage accounts or mobile apps.
FINRA explained that an online order to buy or sell securities is first sent to a brokerage firm, which in turn decides which market to send it to for execution.
FINRA broke down the steps:
- Order Placement. An investor places an order online to buy or sell a stock, the order is sent to a brokerage firm rather than directly to the securities markets.
- Brokerage Review. The firm evaluates the order, checking compliance with regulations and internal policies.
- Order Routing and Execution. The firm decides how best to execute the order, which may involve routing to an exchange, an alternative trading system, or a wholesale broker-dealer.
- Trade Confirmation. After execution, the firm sends an electronic confirmation. This confirmation details the transaction specifics, such as the number of shares, price per share and total cost.
- Clearing and Settlement. The firm (or its clearing firm) verifies the trade terms and arranges for the transfer of shares and funds.