How the market works
A trade connects investor, intermediary, venue, clearing, settlement and custody; each link performs a different job.
What you will learn
- Separate primary and secondary markets.
- Put a basic order journey in sequence.
- Distinguish execution, clearing, settlement and custody.
- Understand that best execution considers more than the displayed price.
Concept
Two markets, two exchanges
In the Primary market a company issues securities and raises finance. In the Secondary market investors trade securities that already exist; money usually changes hands between buyer and seller rather than reaching the issuer.
Process
From instruction to match
An investor sends an Order to an Intermediary. It applies controls and routes the order to a Venue or another permitted channel. A match with a compatible order produces an Execution.
Calculation
A match does not finish the trade
• Clearing: determines obligations and manages risk between participants. • Settlement: delivers securities and cash on the applicable date. • Custody: maintains the holding record and channels later payments and events.
Risk
Best execution
In the EU, an execution policy must seek the best possible result by considering price, costs, speed, likelihood of execution and settlement, size and nature. It does not mean every order always receives the best imaginable price.
Worked example
Fictional example: an Aurora order
Example facts
- Noa gives an intermediary a limit order for 25 Aurora shares.
- The intermediary routes it to a venue under its policy.
- Twenty shares execute and five remain open.
Walkthrough
1: The instruction and controls happen before the match.
2: Execution creates obligations, but securities and cash still need to settle.
3: After settlement, the position appears under the account's custody model.
Conclusion
An executed order is not yet a settled position: each link, from intermediary to custody, performs a distinct job and can fail on its own.
Lesson scope
- Jurisdiction
- General concepts with identified ES/EU and US examples.
- Temporal scope
- Sources checked 2026-08-27; check for updates.
Official sources
- Mercado primario (opens in a new window)
Comisión Nacional del Mercado de Valores · ES
- Checked:
- Operativa con valores y servicios de inversión (opens in a new window)
Comisión Nacional del Mercado de Valores · ES
- Checked:
- Estructura del mercado de valores español (opens in a new window)
BME · ES
- Checked:
- MiFID II Article 27 — Obligation to execute orders on terms most favourable to the client