What Actually Happens When You Buy a Stock?
Understand the mechanics behind your stock purchase, from order placement through settlement. A clear explanation of how ownership transfers and what you actually own.
What Actually Happens When You Buy a Stock?
Key Takeaways
- When you click buy, your broker routes your order to an exchange to find a seller, the trade executes in milliseconds, and settlement (actual ownership transfer) happens one to two business days later.
- You own electronic shares registered in your broker’s name, but you’re the beneficial owner with all rights to dividends, voting, and profits, which is why trading is faster than with paper certificates.
- Costs include potential commissions, spreads (the buy-sell price gap), and possible transaction taxes, but for long-term investors, these one-time costs matter less than ongoing fund fees.
Placing the Order
You open your broker’s app. You find the stock you want. You decide: buy 10 shares of Company X.
You pick an order type. A market order buys at whatever price is currently available right now. A limit order only executes if someone’s willing to sell at your specified price. For routine purchases, market orders are simpler. For larger buys, limit orders protect you from price surprises.
You click confirm. Your broker doesn’t sell you shares from some inventory. Instead, your broker routes your order to a stock exchange where buyers and sellers meet. The exchange maintains an order book listing what people want to buy and sell. Your order joins that queue.
Finding a Match
Every buyer needs a seller. The exchange’s matching engine is constantly looking for pairs.
Market order? You get matched to whoever’s currently offering the best price. Usually happens in milliseconds for popular stocks like Apple or Microsoft.
Limit order? Your order waits until someone comes along willing to sell at your price, or not at all if nobody matches it.
For popular stocks, there’s always someone on the other side. Millions of shares trade daily. For obscure micro-cap stocks, you might wait hours or even days. This is liquidity, and it matters for trading ease.
Execution Happens in Milliseconds
When your order matches a seller, the trade executes. You see a confirmation: “10 shares at €X per share.” Total cost calculated. Your money reserved.
The price might differ slightly from what you saw moments before. That’s the spread, the gap between what buyers are offering and what sellers are asking. It’s a small hidden cost of trading. The tighter the spread, the less you lose to it.
At this point, you’ve agreed to buy. The trade is confirmed but not yet settled. You haven’t officially become the owner, but you’re committed.
Modern trading is absurdly fast. From clicking buy to getting confirmation often takes under a second. Computers match orders across global exchanges nearly instantly. This speed is why electronic shares replace paper certificates.
Settlement
Settlement is when ownership officially transfers. Your broker shows the shares in your account immediately, but technically you’re not the owner until settlement completes.
In the US, settlement is T+1, meaning one business day after the trade. In Europe, it’s typically T+2, or two business days. During that time, the clearinghouse moves your money to the seller and their shares to you. Behind the scenes, there’s complex coordination between financial institutions.
For practical purposes, this settlement delay rarely matters. Your broker acts as though you own them immediately, and you can sell them at any time. But technically, the ownership transfer is official after settlement.
How Your Shares Are Held
There are no paper certificates sitting in a vault. Your shares are electronic entries in databases. Your broker holds them on your behalf, tracked by central registries.
This is called street name registration: shares are registered to your broker, but you’re the beneficial owner with all the rights. Makes trading faster because there’s no paperwork to move around.
Some investors prefer direct registration in their own name. More secure from a custody perspective, but less convenient for trading because transfers take longer.
For most investors, broker custody is fine. Your shares are protected by regulations and insurance, and you can trade instantly when needed.
What You Actually Own
Stock is ownership. Each share is a fraction of the company. If a company has 1 million outstanding shares and you own 100, you own 0.01% of the business.
This gives you real rights. You get dividends when declared. You can vote at shareholder meetings (though as a small owner, your vote means nothing). If the company dissolves, you have a claim on the remaining assets. As a small shareholder, your influence on company decisions is nil, but you share in the company’s success.
When the company’s profits grow, your stake becomes more valuable. Employees produce products, customers buy them, revenue grows, margins expand, profits increase. Your ownership stake in that business expands with it. That’s how investors build wealth: by owning pieces of growing businesses.
Behind every ticker symbol is a real company. Apple has factories, engineers, stores, customers. When you own Apple stock, you’re not trading symbols. You’re becoming a partial owner of a company that employs hundreds of thousands of people.
Costs You Should Know
Many online brokers charge zero commission now. Trading used to cost money. Technology made it nearly free.
The spread is still there, a hidden cost. If Apple is bid at €150 and offered at €150.05, the spread is €0.05. On a large purchase, this adds up.
Some countries charge transaction taxes on purchases, typically 0.1% to 0.5%. This affects returns on active trading.
For long-term investors, these one-time costs matter far less than ongoing fund fees. A 0.5% annual fee on an ETF you hold for 30 years costs far more than a €5 spread you pay once. But for frequent traders, costs accumulate and erode returns significantly. Another reason buy and hold beats constant trading.
When You Sell
Selling is the reverse process. You place a sell order, the exchange finds a buyer, the trade executes, and it settles. Money appears in your account, shares disappear from your holdings.
The mechanics are straightforward. Knowing when to sell is the hard part, and that’s a different question entirely.
One important note: selling might trigger capital gains taxes. Long-term holdings often get better tax treatment than short-term trades. Know your country’s rules before you click sell, especially if you’re selling at a big profit.
Understanding how purchases work removes mystery and builds confidence. You’re not making magic happen. You’re connecting with someone who wants to sell, agreeing on a price, and transferring ownership. When you’re ready to start, Gallio gives you a web-only platform focused on your long-term goals, so you can skip the noise and focus on steady investing.
What Actually Happens When You Buy a Stock?
Key Takeaways
- When you click buy, your broker routes your order to an exchange to find a seller, the trade executes in milliseconds, and settlement (actual ownership transfer) happens one to two business days later.
- You own electronic shares registered in your broker’s name, but you’re the beneficial owner with all rights to dividends, voting, and profits, which is why trading is faster than with paper certificates.
- Costs include potential commissions, spreads (the buy-sell price gap), and possible transaction taxes, but for long-term investors, these one-time costs matter less than ongoing fund fees.
Placing the Order
You open your broker’s app. You find the stock you want. You decide: buy 10 shares of Company X.
You pick an order type. A market order buys at whatever price is currently available right now. A limit order only executes if someone’s willing to sell at your specified price. For routine purchases, market orders are simpler. For larger buys, limit orders protect you from price surprises.
You click confirm. Your broker doesn’t sell you shares from some inventory. Instead, your broker routes your order to a stock exchange where buyers and sellers meet. The exchange maintains an order book listing what people want to buy and sell. Your order joins that queue.
Finding a Match
Every buyer needs a seller. The exchange’s matching engine is constantly looking for pairs.
Market order? You get matched to whoever’s currently offering the best price. Usually happens in milliseconds for popular stocks like Apple or Microsoft.
Limit order? Your order waits until someone comes along willing to sell at your price, or not at all if nobody matches it.
For popular stocks, there’s always someone on the other side. Millions of shares trade daily. For obscure micro-cap stocks, you might wait hours or even days. This is liquidity, and it matters for trading ease.
Execution Happens in Milliseconds
When your order matches a seller, the trade executes. You see a confirmation: “10 shares at €X per share.” Total cost calculated. Your money reserved.
The price might differ slightly from what you saw moments before. That’s the spread, the gap between what buyers are offering and what sellers are asking. It’s a small hidden cost of trading. The tighter the spread, the less you lose to it.
At this point, you’ve agreed to buy. The trade is confirmed but not yet settled. You haven’t officially become the owner, but you’re committed.
Modern trading is absurdly fast. From clicking buy to getting confirmation often takes under a second. Computers match orders across global exchanges nearly instantly. This speed is why electronic shares replace paper certificates.
Settlement
Settlement is when ownership officially transfers. Your broker shows the shares in your account immediately, but technically you’re not the owner until settlement completes.
In the US, settlement is T+1, meaning one business day after the trade. In Europe, it’s typically T+2, or two business days. During that time, the clearinghouse moves your money to the seller and their shares to you. Behind the scenes, there’s complex coordination between financial institutions.
For practical purposes, this settlement delay rarely matters. Your broker acts as though you own them immediately, and you can sell them at any time. But technically, the ownership transfer is official after settlement.
How Your Shares Are Held
There are no paper certificates sitting in a vault. Your shares are electronic entries in databases. Your broker holds them on your behalf, tracked by central registries.
This is called street name registration: shares are registered to your broker, but you’re the beneficial owner with all the rights. Makes trading faster because there’s no paperwork to move around.
Some investors prefer direct registration in their own name. More secure from a custody perspective, but less convenient for trading because transfers take longer.
For most investors, broker custody is fine. Your shares are protected by regulations and insurance, and you can trade instantly when needed.
What You Actually Own
Stock is ownership. Each share is a fraction of the company. If a company has 1 million outstanding shares and you own 100, you own 0.01% of the business.
This gives you real rights. You get dividends when declared. You can vote at shareholder meetings (though as a small owner, your vote means nothing). If the company dissolves, you have a claim on the remaining assets. As a small shareholder, your influence on company decisions is nil, but you share in the company’s success.
When the company’s profits grow, your stake becomes more valuable. Employees produce products, customers buy them, revenue grows, margins expand, profits increase. Your ownership stake in that business expands with it. That’s how investors build wealth: by owning pieces of growing businesses.
Behind every ticker symbol is a real company. Apple has factories, engineers, stores, customers. When you own Apple stock, you’re not trading symbols. You’re becoming a partial owner of a company that employs hundreds of thousands of people.
Costs You Should Know
Many online brokers charge zero commission now. Trading used to cost money. Technology made it nearly free.
The spread is still there, a hidden cost. If Apple is bid at €150 and offered at €150.05, the spread is €0.05. On a large purchase, this adds up.
Some countries charge transaction taxes on purchases, typically 0.1% to 0.5%. This affects returns on active trading.
For long-term investors, these one-time costs matter far less than ongoing fund fees. A 0.5% annual fee on an ETF you hold for 30 years costs far more than a €5 spread you pay once. But for frequent traders, costs accumulate and erode returns significantly. Another reason buy and hold beats constant trading.
When You Sell
Selling is the reverse process. You place a sell order, the exchange finds a buyer, the trade executes, and it settles. Money appears in your account, shares disappear from your holdings.
The mechanics are straightforward. Knowing when to sell is the hard part, and that’s a different question entirely.
One important note: selling might trigger capital gains taxes. Long-term holdings often get better tax treatment than short-term trades. Know your country’s rules before you click sell, especially if you’re selling at a big profit.
Understanding how purchases work removes mystery and builds confidence. You’re not making magic happen. You’re connecting with someone who wants to sell, agreeing on a price, and transferring ownership. When you’re ready to start, Gallio gives you a web-only platform focused on your long-term goals, so you can skip the noise and focus on steady investing.