How Trading Works: The Life of a Trade

In The European Equities Market


News, tips, technical analysis, and/or discussions about what stocks to buy or sell.

Investors evaluate their investment positions and strategies based on news, corporate actions, a financial advisor’s recommendations, technical analysis, or word-of-mouth from other investors.

Initiate a Trade

Contact financial advisor, broker or independently research stocks.

Investors begin the process of placing an order to buy or sell a stock by discussing strategies and options with their financial advisors and/or brokers, or by reviewing reports and news regarding the stock.

Place an Order

The broker enters an order.

Brokers enter orders into their order management system, or investors enter orders themselves through their online brokerage accounts. An order includes the stock name (aka "ticker"), a buy or sell indicator, the number of shares, limit price or other order handling instructions (See the Cboe Europe Market Guide for additional information on order types). An example would be: Buy 100 shares of Siemens (SIEd) at a limit price of €100.28. The investor has specified that he/she will not spend more than €100.28 per share.

Order Directed to One or More Exchanges

The order is sent to interact with other orders at a marketplace.

These orders are sent across secure electronic connections to pan-European exchanges, such as Cboe Europe, or to national exchanges such as the London Stock Exchange or Deutsche Börse, to interact with orders that were placed by other investors. Unlike the U.S. exchanges, exchanges in Europe are not typically interconnected. Therefore, the broker must select which exchange to send the order based on certain criteria, including which exchange displays the best buy and sell prices, the order size, and the likelihood and speed of execution. The duty of an investment services firm to fill orders with the best possible outcome for the investor is known as “best execution”.

Trade Is Executed

The order is paired at the exchange with another order to make a trade.

  1. Orders are paired with matching orders from other investors to buy or sell the desired amount of securities.
  2. When a trade is executed, individuals are charged a fee or commission from their brokers depending on the type of service they desire.
  3. Depending on whether the broker added or removed liquidity, and depending on the exchange to which the order was sent, the broker will receive a rebate or be charged a fee from the exchange for executing the order.

When a broker adds liquidity to a market, that means he/she has added a buy or sell order to an exchange order book. If a broker removes liquidity, that means he/she has executed against a buy or sell order that was resting on an exchange order book, thus removing the order from the market.

Trade Information Is Sent to Clear and Settle

Trade information is sent to the relevant central counterparty for clearing and settlement. Central counterparties (CCPs) give protection to both sides of a trade, providing to each party that the trade will settle at the agreed price in the event one party defaults on its obligations. Historically, trade information was sent to the clearinghouse within the same national border as the exchange that executed the trade. As more securities trading occurs across borders, pan-European clearinghouses emerged to offer clearing and settlement for securities traded on pan-European exchanges, such as Cboe Europe, in single settlement locations and currencies.

The CCP processes and records all trades, issues a summary to brokers and sends instructions to the settlement agent to settle and process money transfers. The settlement agent electronically transfers ownership of the securities between the buying/selling brokers’ accounts. Finally, the broker/dealers’ settling banks send funds to or receives funds from the settlement agent to complete settlement. Settlement in most European securities occurs two days after the trade and in U.K. and Irish securities* three days after the trade.


Trade notification reaches the investor.

Investors are notified of the trades by their brokers or via their online accounts immediately.

Note: Represents majority of orders