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How Are Stock Market Orders Executed?

There is a common misconception in the securities industry that online accounts directly link the investors to the securities market. That is not the case. Even if you place a trade online, that market order will go to a broker to be executed.

When you request to buy or sell a security at a price, you will start an order to be fulfilled. But, in order for the market order to be executed, your broker will need to submit it on your behalf. Until your broker has gone through all the steps to fulfill your order, it is not considered executed.

How Do Order Executions Work?

Market orders are a fairly basic concept. They are executed as quickly as possible at a given price for the specified security. When you send over your order, your broker will decide the appropriate market to send it for execution.

The order execution process is everything that happens between the time you decide to buy/sell until the time the shares enter/leave your account. The process of executing an order starts once you have met the required parameters including limit orders, numbers and shares.

After you have done so, your broker then tries to execute the order based on those parameters. Once they have matched and filled your order, it is considered executed.

How Long Does Order Execution Take?

Trade execution takes time, orders are not instantaneous. As an investor, you utilize a brokerage account to buy and sell stocks and other securities. A brokerage account does not provide you with direct access to the securities market. Instead, your order execution goes through your broker, who has different methods of trade execution that are available.

Which Orders Are Executed First?

A buy or sell order goes to the top of all pending orders, and with advancements technology can be executed almost immediately. Pending orders during the trading day get sorted by price. The best price sits at the top, while lowest price sits at the bottom. During the trading day, as orders come in, they are filled at these prices. So, if an order comes in with a better bid price, it goes to the top of the list.

But when a market order is received, it jumps the line ahead of all pending orders. If you submit a market order to buy stock, you will pay the highest price on the market. Alternatively, if you submit a market order to sell your stock, you will receive the lowest price on the market.

Do You Have an Option to Direct Trades?

If you want to try and cut out the middleman, for whatever personal reason you may have, you can consider a direct trade. If you’re interested in directing your trade through a particular exchange, ECN, or market maker, you might have to jump through a few hoops. Start by making a call to your broker and asking them if they offer this service. If they do, they might charge a fee for the service.

Please note, this is not recommended for entry-level traders. If you are an active trader, your broker might offer you the ability to direct orders in Nasdaq stocks to the ECN or market maker of your choice.

Broker’s Options for Executing Trades

When you became an investor, and over the course of your time as an investor, you likely put in time and effort to research and select investments and brokers that you trust. Like you, your broker has options on the markets to execute your trades. In fact, they have the duty of “best execution,” meaning they must seek the best execution that is reasonably available for their customers, including you.

Market Maker

If a stock is listed on an exchange, like the New York Stock Exchange (NYSE), your broker can direct the order to that specific exchange, a different exchange, or a third-party firm called a “market maker.” Market makers are firms that stand ready to buy/sell stocks listed on an exchange at the publicly quoted prices.

To lure brokers from other exchanges, market makers will pay your broker for routing your order to their firm – typically a penny or more for each share. This arrangement is called “payment for order flow.”

There are three types of market making specializations: retail, wholesale, and institutional.

Retail Market Makers

Retail market making firms offer their services to retail brokerage customer orders.

Wholesale Market Makers

Wholesale market making firms trade shares for broker-dealers and institutional clients that are not registered as market makers in specific stocks.

Institutional Market Makers

These market making firms specialize in large block orders for pension funds, insurance companies, asset management companies, and mutual funds.  

Institutional and retail market makers tend to keep large inventory on hand, where wholesalers try to avoid the unnecessary risk regarding capital commitment.

Over-The-Counter (OTC) Market 

An over-the-counter market (OTC) is a type of market maker that participants trade without a central exchange or third party – trading directly between two parties. They do not have physical locations as all trading is done electronically.

In this type of market, dealers act as market-makers, quoting prices at which they will buy/sell stocks and other securities. The order can be executed without others being aware of the price at completion. OTC markets are generally less transparent than exchanges and are subject to fewer regulations.

Like market makers, OTC markets may also pay brokers for the order flow.

Electronic Communication Network (ECN)

The computerized system that automatically matches buy/sell orders for securities is called an Electronic Communication Network (ECN). This system connects brokerages with traders to trade directly among themselves without having to use a middleman. ECNs are required to be registered as broker-dealers with the U.S. Securities and Exchange Commission (SEC).


If your broker’s firm has an inventory of the security you want to buy, it may decide to send your order to be filled internally. A brokerage firm uses internalization to make money on the spread, the difference between the sale and purchase price.

What Is a Broker’s Duty of “Best Execution?”

As mentioned above, your broker has a duty to seek the best execution for your order, permitting what is reasonably available. This means that they are required to evaluate the orders from all their customers, then provide the most favorable terms of execution.

When your broker is executing your order, they must weigh the opportunity for “price improvement.” This is an opportunity for your order to be executed at a better price, but it is not guaranteed. Sometimes the added time to execute the order can result in you getting a worse price than originally quoted, which can happen in fast-moving markets. It is the duty of your broker to determine the risk and trade-off between the possibility of better prices or the time that it might take.

The Bottom Line: When in Doubt, Hire a Professional

The market moves fast. Market orders can perform unexpectedly, and without proper expectations can frustrate investors. To combat any unease, find a financial advisor that fits your needs and can provide you with guidance. They will not only help you understand orders, but they can also provide you with a roadmap to reach your goals.

Investing is personal and needs to be done with the end in mind. Diversifying your investments through various securities can be a key to your success. To fully understand the ins and outs of market orders, reach out to a Financial Advisor near you.