How does the Stock Market Work?
1. After being listed on stock exchanges, company-issued shares are eligible for trading on the secondary market.
2. As intermediaries between investors and the stock exchange, stockbrokers, and brokerage firms facilitate the purchase and sale of securities listed on the exchanges. Your broker notifies the stock exchange of your purchase order for shares. For the same share, the stock exchange searches for a sell order.
3. After locating a seller and a customer, the transaction is finalized by agreeing to a price. The stock exchange subsequently notifies your broker of the confirmation of your order. You are subsequently informed of this message via the broker. Everything occurs in mere seconds and in real-time.
4. At the same time, the stock exchange verifies the information of share purchasers and vendors to prevent any potential defaults.
5. Subsequently, it enables the physical transmission of share ownership from vendors to purchasers. The term for this procedure is the settlement cycle.
6. Stock transactions used to require weeks to settle in the past. However, this has since been reduced to T+2 days.