Trading, Markets, and Settlement
Order Types
A market order executes promptly at the best available price, prioritizing speed over price certainty. A limit order sets a maximum buy price or minimum sell price and executes only at that price or better, offering price protection but no guarantee of fill. Stop orders are triggered when the stock trades through the stop price, becoming market orders; sell stops sit below the market to limit losses and buy stops sit above it, often protecting short positions. Stop limit orders become limit orders once triggered, and duration instructions such as day, good-till-canceled, fill-or-kill, immediate-or-cancel, and all-or-none govern how long and how completely an order works.
Market Structure
The primary market is where issuers sell new securities and raise capital, while the secondary market is where investors trade previously issued securities among themselves. Exchange trading is supported by designated market makers responsible for maintaining a fair and orderly market, and firms may act as agents earning commissions or as principals earning markups and markdowns from inventory. The third market is over-the-counter trading of listed securities, and the fourth market is direct institution-to-institution trading. The National Best Bid and Offer consolidates quotes across market centers to support best execution.
Quotes and Pricing
A quote shows the bid, the highest price a buyer will pay, and the ask or offer, the lowest price a seller will accept, with the difference being the spread and a cost of trading. Bonds are quoted as a percentage of par, so a quote of 98 equals $980 on a $1,000 par bond, plus accrued interest in a regular-way trade. Executions between the bid and ask represent price improvement. Short sellers deliver borrowed shares and profit when the price declines, bearing theoretically unlimited risk and responsibility for dividends while short.
Settlement and Clearing
Regular-way settlement for most corporate stocks and bonds is currently one business day after the trade date (T+1), when securities and payment are exchanged. Transfer agents issue and cancel certificates and maintain shareholder records, often working with a registrar to prevent over-issuance. Clearing organizations facilitate the netting and settlement of trades. Proper settlement timing matters for dividend eligibility, margin, and the delivery obligations that underpin an orderly market.
Corporate Actions
Corporate actions change the terms or number of a company's shares. A forward stock split increases shares and reduces price proportionally, while a reverse split does the opposite; total market value is roughly unchanged in both. Cash dividends reduce the stock's opening price on the ex-dividend date, and buyers on or after the ex-date are not entitled to the declared dividend. Stock dividends distribute additional shares and lower the per-share cost basis. Tender offers invite shareholders to sell shares, often at a premium, and rights offerings let existing holders subscribe to new shares before the stock trades ex-rights.
Last updated: July 2026