Page 35 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

It is still the same, where, on one side of a trade there is a buyer and on the other side
of the trade is the seller. And this is important, both the buyer and seller agree on
price, but, disagree on value. The farmer and the rancher exchanged commodities;
they were buying and selling. They agreed on how much to make the exchange for, but
they disagreed on the value of the item they were exchanging. They each had a
surplus of one commodity and were willing to give it up for something else.

When you sit behind your computer screen, and you place a buy or a sell order, it goes
through many more channels and systems than the farmer and the rancher shaking
hands on a deal, but it is exactly the same.

Buyers and Sellers and The Financial Order Flow

Process

In the world of buy and sell orders there are many players that contribute to the process.
The journey that an order takes from the time it is initiated by the trader or investor until
the time it is confirmed by the clearing house may take just seconds, and yet in slow
The series of events for a typical transaction go something like this:

1) Order is entered. The investor or trader enters a buy or sell order through their front
end platform or in some cases they call their broker directly to initiate the order. There
are different types of orders that can be placed such as a market order, limit order or
stop order. The type of order that is selected is the way that important instructions are
communicated on how the order should be handled and filled.

2) Broker receives order. The broker then receives the order and ensures that the
instructions are carried out correctly. The broker delivers the order directly to the
exchange.

3) Exchange receives order. The exchange then receives the order and finds a
matching order to complete the fill. This filled order information is then provided to the
clearing firm.

4) Clearing firm receives the completed transaction information. The clearing firm
is the player that holds client funds in a segregated bank account in the name of the
account holder. The clearing firm then clears transactions at the end of each day and
provides daily, monthly and year end statements.

5) Trader or Investor receives confirmation of all their transactions and what the
fill price was for each. The trader or investor will receive a confirmation statement on
all transactions and the fill price and net balance on their account from their broker.

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