How Does Stock Trading Work?
Stock trading works through a system where buyers and sellers meet on an exchange platform. When you place a buy order, the exchange matches it with a seller offering the same price. The trade is executed electronically, and both parties' accounts are updated after settlement. All of this happens within milliseconds on modern exchanges like NSE and BSE.
The Order Matching System
NSE and BSE use an electronic order matching system. All buy orders and sell orders for a stock are collected in an order book. The system matches the highest buy order price with the lowest sell order price. When prices match, a trade is executed. If no matching order exists, your order waits in the queue until a counterparty appears.
Types of Orders
- Market order: Executes immediately at the best available price
- Limit order: Executes only at your specified price or better
- Stop-loss order: Triggers a sell order when the price falls to a specified level
- GTT (Good Till Triggered) order: Remains active until the specified price is reached
Market Hours
The Indian stock market operates from 9:15 AM to 3:30 PM on weekdays. There is a pre-market session from 9:00 AM to 9:15 AM for placing orders that execute at market open. The post-market session runs from 3:40 PM to 4:00 PM for closing trades.
Settlement Process
After a trade is executed, settlement occurs in T+1 days (one business day). This means:
- If you buy shares on Monday, they are credited to your demat account on Tuesday
- If you sell shares on Monday, the money is credited to your bank account by Tuesday
Price Discovery
Stock prices are determined by supply and demand. When more investors want to buy a stock than sell it, the price rises. When more want to sell, the price falls. Factors influencing price include company earnings, economic data, news events, global markets, and investor sentiment.
Costs of Trading
Trading involves several charges: brokerage (fee to your broker), STT (Securities Transaction Tax), exchange transaction charges, GST on brokerage, and SEBI charges. These costs reduce your net profit from trading and must be factored into every trade.
Key Takeaway
Stock trading works through an electronic order matching system on NSE and BSE, with T+1 settlement. Understanding how orders are executed, prices are determined, and charges are applied helps you trade more effectively. Use the Lemonn app to analyze stocks and execute informed trading decisions.
