Stocks are bought and sold through a brokerage account: you enter an order, the brokerage routes it electronically to an exchange or a market maker, a matching engine pairs your order with someone on the other side in milliseconds, and one business day later a central clearing system moves the shares into your name and the cash out of your account. Everything else — order types, fees, extended-hours quirks, day-trading rules, taxes — is detail layered on top of that basic sequence.
The Account That Makes a Trade Possible
You can’t buy a share directly from an exchange. You buy it through a brokerage firm that holds an account in your name and connects to the market on your behalf. Most people open one online in a few minutes, choosing between a taxable individual account and a tax-advantaged retirement account like a Traditional or Roth IRA. The account type determines how any gains are taxed and when you can pull the money out.
Federal anti-money-laundering rules require the brokerage to verify who you are before the account opens. At a minimum that means your name, date of birth, address, and a taxpayer identification number, usually your Social Security number, along with an unexpired government-issued photo ID.1eCFR. 31 CFR 1020.220 – Customer Identification Program Requirements for Banks Once approved, you link a bank account through the ACH system to fund the brokerage. Most major firms now charge zero commission on standard stock and ETF trades, though options contracts, account transfers, and broker-assisted phone trades still carry fees.
Placing an Order
A trade begins on a digital order ticket. You enter the ticker symbol that identifies the company, then a share count or, at many brokerages, a dollar amount if you want fractional shares. The choice that shapes the outcome most is the order type.
- A market order executes immediately at the best available price. You are guaranteed a fill, but in fast-moving conditions the price you get can differ from the quote you saw.
- A limit order sets a ceiling when buying or a floor when selling. It only fills if the market reaches your price. The trade-off is that it may never execute.
- A stop order sits inactive until the stock hits a trigger price, at which point it converts into a market order. Investors often use these to cap losses on positions they already hold. Because the triggered order becomes a market order, the actual fill in a volatile stock can print well past the trigger.2Investor.gov. Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders
- A stop-limit order works like a stop order but converts into a limit order once triggered. You control the worst price you will accept, at the cost of the order possibly not filling if the stock blows through your limit.2Investor.gov. Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders
Most platforms also ask for a Time in Force. A day order expires at the market close if it hasn’t filled. A good-til-canceled order stays live across sessions until it fills or you cancel it. Look at every field before you submit. Correcting a wrong quantity or the wrong order type after execution is often expensive and sometimes impossible.
How the Order Reaches the Market
When you hit submit, your brokerage routes the order electronically to an exchange such as the NYSE or Nasdaq, or to an alternative trading venue. Matching engines at those venues scan for a resting order on the opposite side. For every buyer at a given price there must be a willing seller. When the engine finds a match, the trade fills in milliseconds.
If no natural counterparty is sitting at your price, market makers fill the gap. These firms continuously quote a price to buy and a price to sell for a given stock and earn money on the spread between the two. For heavily traded names the spread is often a single penny; for thinly traded stocks, or during off-hours, it widens.
Brokers have a legal duty to seek the best reasonably available execution for customer orders, weighing price, speed, and the likelihood of a complete fill.3FINRA.org. FINRA Rule 5310 – Best Execution and Interpositioning Separately, brokers must publish quarterly reports showing where they route orders and whether they receive payment for directing flow to particular venues, a practice known as payment for order flow.4eCFR. 17 CFR 242.606 – Disclosure of Order Routing Information The reports are public if you want to check how your broker handles your orders.
Settlement: When Ownership Actually Changes Hands
Execution and settlement are two different events. Execution is the moment buyer and seller agree on a price. Settlement is when the shares and cash actually move. Under SEC rules effective since May 28, 2024, most U.S. stock trades settle T+1, one business day after the trade date.5U.S. Securities and Exchange Commission. Shortening the Securities Transaction Settlement Cycle – Final Rule
The infrastructure behind that transfer runs through the Depository Trust & Clearing Corporation and its subsidiaries. The National Securities Clearing Corporation acts as the central counterparty, stepping between buyer and seller so the trade completes even if one side defaults. The Depository Trust Company handles the actual movement of share ownership through its book-entry system.6DTCC. Clearing and Settlement Services Almost every U.S. stock is held electronically in the name of Cede & Co., a nominee of the DTC. You are the beneficial owner and hold the economic rights, but at the depository level the shares are registered under Cede. Your brokerage tracks who owns what on its own books.
Paper stock certificates have effectively disappeared. Electronic book-entry ownership speeds transfers, eliminates the risk of lost or stolen certificates, and makes single-day settlement possible across millions of daily trades. Once your trade settles, the brokerage updates your portfolio and issues a confirmation showing the final price, share count, trade and settlement dates, and any fees.
What You Actually Pay
Even with commission-free trading, small regulatory fees still apply. The SEC charges a transaction fee under Section 31 of the Securities Exchange Act, set at $20.60 per million dollars of covered sales for fiscal year 2026.7U.S. Securities and Exchange Commission. Order Making Fiscal Year 2026 Annual Adjustments to Transaction Fee Rates On a $5,000 sale that comes out to about a tenth of a penny. Brokerages typically pass this through on sell orders, and it appears on your confirmation. FINRA also charges a small trading activity fee. Neither amount matters much to individual investors, but they explain the odd line items on a confirmation.
The larger unseen cost is the bid-ask spread, which you pay on every trade regardless of commissions. On liquid stocks it’s usually trivial. On illiquid ones, or in extended-hours sessions, it can meaningfully affect your fill.
When You Can Trade
Regular U.S. stock market hours run 9:30 a.m. to 4:00 p.m. Eastern Time on weekdays. Many brokerages also offer pre-market sessions starting around 8:00 a.m. ET and after-hours sessions running roughly 4:00 p.m. to 8:00 p.m. ET, though the exact windows vary.
Trading outside regular hours carries real drawbacks. Fewer participants mean less liquidity, wider spreads, and sharper price swings, because a single large order moves more when volume is thin. News released after the close or before the open tends to move prices more dramatically in these sessions precisely because fewer traders are absorbing it.8U.S. Securities and Exchange Commission. After-Hours Trading: Understanding the Risks Most brokerages accept only limit orders in extended-hours sessions, which protects you from extreme fills but also means your order may not execute at all.
Rules That Catch New Investors
Cash Accounts and Settled Funds
In a standard cash account you are expected to pay for purchases with settled funds. Sell a stock and immediately use those proceeds to buy something else, then sell the new position before the first sale settles, and you have a problem. Selling a stock that was bought with unsettled funds before covering it with deposited cash triggers a freeriding violation. Doing something similar with proceeds that haven’t fully cleared is a good faith violation.
Three good faith violations within a rolling 12-month period, or a single freeriding violation, typically results in a 90-day restriction. During that period you can only buy stocks if you already have enough settled cash in the account to cover the purchase before you place the order.9Fidelity. Avoiding Cash Account Trading Violations
Margin Accounts
A margin account lets you borrow from your broker to buy stocks, using the securities in the account as collateral. Under Federal Reserve Regulation T, a broker can lend up to 50% of a stock’s purchase price for new buys, so a $10,000 position requires at least $5,000 of your own money.10FINRA.org. Margin Regulation Margin amplifies both directions. If the stock falls, you may face a margin call requiring fresh cash or forced sales. Interest accrues daily, so holding borrowed positions for weeks or months quietly eats returns.
Pattern Day Trading
Execute four or more day trades within five business days in a margin account and your broker will flag you as a pattern day trader.11FINRA.org. FINRA Rule 4210 – Margin Requirements A day trade means buying and selling the same stock on the same day. Once flagged, you must keep at least $25,000 of equity in the account at all times, and if the balance drops below that you can’t day trade until you restore it. Exceeding your day-trading buying power triggers a margin call with five business days to deposit; miss it, and the account becomes cash-available-only for 90 days.12Investor.gov. Margin Rules for Day Trading The rule surprises newer traders who don’t realize that selling and immediately rebuying the same stock counts as a day trade even if it felt like one decision.
The Tax Side of a Sale
Every sale in a taxable account is reportable. Your broker files Form 1099-B with the IRS after year-end listing proceeds, cost basis for covered securities, acquisition date, and whether the gain or loss is short-term or long-term.13Internal Revenue Service. Instructions for Form 1099-B You use that to complete Schedule D.
How long you held the stock decides the rate. One year or less produces a short-term gain taxed at your ordinary income rate. More than a year qualifies as a long-term gain, taxed at 0%, 15%, or 20% depending on your taxable income.14Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses Higher earners also owe a 3.8% net investment income tax on capital gains above set income thresholds.15Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
One tax rule bites people who try to book losses without really exiting a position. If you sell a stock at a loss and buy a substantially identical security within 30 days before or after that sale, the IRS disallows the loss.16Office of the Law Revision Counsel. 26 USC 1091 – Loss from Wash Sales of Stock or Securities The disallowed loss isn’t lost forever; it gets added to the cost basis of the replacement shares. But the tax benefit is deferred, sometimes for a long time, and the timing catches investors who aren’t tracking it carefully.
Tax-advantaged retirement accounts sidestep most of this. Sales inside a Traditional IRA or Roth IRA don’t trigger a 1099-B or a capital gains calculation, and the wash sale rule doesn’t apply the same way. The mechanics of buying and selling are identical; the tax consequences are not.