US Equity Market Structure (6): Instant Replay – Tracking an Order from Start to Finish

This is the final post of a series on US Equity Market Structure (a total of 6).

I didn't write any of these posts; while I was learning the fundamentals about investment, I came across this series on Interactive Brokers' IBKRCampus. If you are interested you can go to their site here.

（Disclosure: I'm using Interactive Brokers for my personal investing, but I'm not paid by them to write about it.)

This series is mostly platform-agnostic, meaning that you don't have to be on Interactive Brokers to find this series useful. Enjoy.

Welcome back! In this final lesson of our introduction to U.S. equity market structure, we’ll put everything we've learned together and walk through the life cycle of a simple order from start to finish. Let’s follow what happens when you place an order to buy shares.

The Order

Let’s assume you want to buy 1,000 shares of General Electric (GE). The last sale price for GE was $10, and currently, the best bid (the highest price a buyer is willing to pay) is $9.99, while the best offer (the lowest price a seller is willing to accept) is $10.

Your Broker

You have a retail trading account with an online broker. This is where you go to enter your trade. Using your broker’s interface, you enter the following information:

1. Order Type: You decide to place a limit order at $10. You are comfortable with paying $10, but you don’t want to pay more if the price rises.
2. Instructions: You fill in the details, review the order, and hit transmit.

Entering the Market

Once your order enters the market, 500 shares are immediately filled at the midpoint price of $9.99 (due to hidden or non-displayed liquidity). This gives you an advantage, saving $2.50 compared to your original limit price of $10.

For the remaining 500 shares, your electronic broker sends your order to the exchanges where the stock is quoted at $10. Fortunately, there’s enough available volume at this price, and the rest of your order is filled at $10.

Final Execution

In total, you bought 1,000 shares of GE. The total cost comes to $9,997.50, thanks to the price improvement on the first 500 shares. This was a successful execution because you paid less than your limit order anticipated.

Other Options

There are many other ways this trade could have played out depending on the order type and additional instructions you could have given. For example, if you were dealing with a larger order that would take more time to execute, you might have chosen an IEX D-Peg order. This order type adjusts the execution price based on market conditions, protecting you from trading when prices are unstable.

These advanced features can help optimize your trading strategies, especially in high-speed environments.

Conclusion

And that’s the life cycle of a simple trade, from your initial idea to the final execution. Thanks for joining this course on U.S. equity market structure. If you’re curious about more advanced topics or want to dive deeper into trading strategies, don’t hesitate to reach out. Happy trading!