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What Happens After You Submit Your Stock Order

A Backstage Look at How Your Stock Order Is Processed



Have you ever thought about what happens after you click the "submit" button with your online broker?  It's a much more involved process than you would probably think and you might be surprised at how many "layers" your order goes through from start to finish.

Though there may be minor variations from broker to broker, this is how it usually works.

The starting point is your broker's "platform."  This can be a desktop or mobile platform; basically the software interface that you see on your devices’ screen where you can create, refine, and ultimately submit your order.  

Once an order is sent from the platform it first goes to your broker's in-house database.  This is where your order is first vetted to see if you have enough buying power in your account to purchase your position, as well as to see if you have the permission to buy the asset class in question.

For example, if you had forty-thousand dollars in your brokerage account and submitted a trade in Apple equal to fifty-thousand dollars, your broker's database would first determine if you had a cash account or a margin account.  If you had a margin account you would deemed to have enough buying power for the position and your broker would accept it.

If however you just had a cash account, you would not have enough buying power for the position and your broker would either reject it outright, or in some cases suggest an alternate position sizing that would keep you within your buying limit.

Next the database checks to make sure your account is allowed to trade the specific asset class you are requesting.  If in this example you were trading Apple options instead of stock, the database would check to see that your account was configured and allowed to trade options.

Once your order is validated it goes to an order routing system, sometimes in-house at the broker, or sometimes via a third-party.  The order routing software takes a look at the total market for the security you are requesting to trade in order to find the very best price.  Once that is found, your order sent to the exchange for execution.

The exchange then reports the trade details - price, quantity, time - back to the broker's database. This is an important piece of the puzzle because the exchange only recognizes the broker as a single account, not your individual account.  It is up to the broker's real-time data base to correctly mark the position as yours.

Once the database has your position entered it then makes corrections and adjustments to your buying power to reflect the amount being allocated to your new position.  Then the information is sent back up stream to your trading platform where it is displayed for you to see and where you can manipulate it.

The miraculous thing about this whole process is that it generally only takes about 1/5 of a second for it to complete the loop from your platform, to broker database, to order routing, to execution, to database update, and back to your platform.

It is such a fast process in fact that depending on how fast your internet connection is, the whole loop can be completed before your screen is able to update.

Photo Credit: Michael H/Digital Vision/Getty Images

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