What happens next?

Saturday, June 14, 2008

After you have placed your order, your brokerage firm tries to execute or fill your order. So using our previous example, you placed an order to buy 10 shares of McDonald's. Your broker must find someone who owns 10 shares of McDonald's that is willing to sell them for $25.00 per share. Where will the brokerage firm find such a person? Buyers and sellers hang out at the market, well not literally.

Actually, there are many markets and they are called exchanges. The two most famous exchanges in the United States are the New York Stock Exchange (NYSE) and Nasdaq. Both exchanges perform similar functions but, the NYSE uses people to conduct the business of buying and selling, whereas the Nasdaq uses computers exclusively to execute the orders. The execution of an order is commonly referred to as a trade.

If your broker was successful in executing your order, 10 shares of McDonald's (MCD) you be credited into your account and the total cost of the trade will be subtracted from your account balance. For instance, if your broker's commission is $10 then the entire cost of the trade is $260.00.

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