Beginner · Lesson 2 of 8

Stock exchanges and how a trade happens

6 minute read · By Krishna Avadhani, Vestora Academy · Updated 18 October 2026

A stock exchange such as the ASX, NYSE or Nasdaq is a marketplace that matches buy orders with sell orders. You do not trade with the company; you trade with another investor through a broker.

A market order buys or sells at the best price available now. A limit order sets the worst price you will accept, so it may not fill. The bid is the highest price a buyer is offering and the ask (or offer) is the lowest price a seller wants. The gap between them is the spread, a hidden cost that is larger for small, rarely traded shares.

In Australia trades settle two business days after the trade (T+2). Your shares are usually held in your name on the CHESS register with a HIN, or held for you by a custodian broker. Knowing which one applies matters if a broker fails.

Key takeaways

Exchanges match buyers and sellers; brokers send your order there.
Limit orders control price; market orders control speed.
Check whether your broker is CHESS-sponsored (HIN) or custodial.

Check your understanding

1. You place a limit buy at $10.00 and the lowest ask is $10.05. What happens?

It fills at $10.05
It waits until someone sells at $10.00 or lower
It is cancelled
It fills at $10.00 immediately

Show the answer

It waits until someone sells at $10.00 or lower. A limit order never pays more than your limit, so it waits.

2. What is the bid-ask spread?

The broker fee
The gap between the best buy and best sell prices
The daily price range
The dividend yield

Show the answer

The gap between the best buy and best sell prices. The spread is the difference between the highest bid and lowest ask.

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General education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.