Anatomy of a Trade
Bid-ask spreads, order types, and execution
When you tap Buy on your brokerage app, somewhere between five and fifty operations happen in the next few milliseconds. Your order leaves the app, gets routed to a market-making firm or an exchange, matches against a quote sitting on the other side, settles, and lands as shares in your account. The whole machinery is invisible by design — designed to feel like magic.
Most of the time it works in your favor. Some of the time it costs you real money in ways your trade confirmation never mentions. This lesson is about the mechanics that decide which side you're on.
The single most important fact about any stock at any moment is that it has two prices, not one. The bid is the highest price someone is willing to pay right now. The ask (or offer) is the lowest price someone is willing to sell at.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 8 sections and ends with 5 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Order types — the four tools every investor should know
- 2Why this matters for long-term investors
- 3Order Book Visualization
- 4Typical bid-ask spreads by stock type — and what they cost on a $10,000 trade
- 5Computing the spread cost on any trade
- 6The $400 mistake — a wide-spread market order in a small-cap
- 7Where to see this on the platform
- 8Summary