How Stock Markets Work
When you give an order to buy or sell a stock or exchange-traded fund (ETF), your brokerage firm sends it to a stock market. Once the trade goes through — and it may take just a few seconds for a market order — your account usually updates immediately.
The order might go to a traditional exchange like the New York Stock Exchange (NYSE), where brokers representing buyers and brokers representing sellers bid against each other on an actual trading floor.
But the order is more likely to go to an electronic market, actually an interconnected network of computers, where market makers compete by posting the specific price at which they’re ready to buy or sell 100 shares of a particular security. Trades are matched electronically.
The other major U.S. stock exchange, the NASDAQ, was the first totally electronic investment market, which started a trading revolution around the world. Now, even at the NYSE, most orders are handled on its electronic network rather than on its trading floor. Why? It’s faster and cheaper.
Some trades occur in the over-the-counter market, or OTC for short. Orders are sent there if the stock is publicly traded but isn’t listed on an exchange. Often, a stock doesn’t qualify for listing because too few shares have been issued or the share price is too low.