Beginner4 min readThe Stock Market for Beginners · 1/11
What Is the Stock Exchange and How Does It Work?
In the end, the stock exchange is a market. Some people want to buy shares, others want to sell, and an organized place brings them together. In this lesson we follow one buy order from the moment you type it until it becomes a trade.
What you will learn
Know who takes part in every trade.
Follow a buy order step by step.
Know who receives your money when you buy a share.
The lesson as a short video · 28 seconds · Watch on YouTubeIn this lesson
The exchange is an organized place where people who want to buy shares meet people who want to sell them. Each side sets a price and a quantity, and the electronic trading system matches orders whose prices meet.
It helps to know from the start that the exchange itself does not sell you shares or buy them from you. It runs the venue and the rules; the trade happens between one investor and another.
Who takes part in a trade?
The investorYou, or anyone who wants to buy or sell.
The brokerThe firm where you open an account; it delivers your order to the exchange. As an individual investor, you usually reach the market through your broker, not directly through the exchange.
The trading systemThe computer that collects buy and sell orders for each stock and matches them when the prices meet.
The listed companyThe company whose shares trade. It is not a party to the everyday trade.
The journey of a buy order
Let us follow a single order. You have an account with a broker and want to buy 100 shares of an invented company, Nakhla Foods, at EGP 12.50 a share.
1
You
Want to buy 100 shares at 12.50
2
Your broker
Checks your balance, sends the order
3
The exchange trading system
Looks for a seller at that price
4
A seller
Offering 300 shares at 12.50
5
A trade
100 shares × 12.50 = 1,250 EGP
From the moment you type the order until it becomes a trade.
You place the orderThrough the broker app or by phone: the stock, the quantity and the price.
The broker checks itIt confirms your account holds enough money, then sends the order to the trading system.
The system looks for a sellerIf someone is offering the stock at 12.50 or less, the two orders meet.
The trade is recordedThe moment the trade executes, its price appears on screen as the last price. Moving the shares to your account and the money to the seller happens later, at settlement.
A worked exampleThe seller was offering 300 shares at 12.50. You bought 100, so the trade is worth 100 × 12.50 = EGP 1,250, plus your broker's fees (ask them what they are). The remaining 200 shares stay on offer until another buyer arrives. If nobody is offering at your price, your order simply waits and does not fill.
Who receives your money?
Watch outMany people think that buying a share puts money into the company. In everyday trading it does not: your money goes to the investor who sold to you. A company raises money when it first offers its shares or issues new ones, not every time the stock changes hands.
That is also why the price moves all session: every new trade at a different price changes the last price. Why people agree to pay more or accept less is the topic of the lesson on why stock prices rise and fall.
See the market at work
Open today's market page and look at the stocks that traded and the prices they traded at.