What Happens After You Press Buy: From Phone Tap to Settlement on the ASX

When you press buy on a share-trading app, you have not bought anything yet. This episode explains what happens in the seconds and then the days afterwards. That sequence explains several things that otherwise look odd: why a share has two prices rather than one, why you sometimes pay slightly more than the number you saw, and why the money doesn't move the instant you're told the trade is done. Start with the tap itself. It is a request, not a purchase. The ASX explains that you choose a stock, a quantity and an order type through a licensed broker, and the broker enters the order onto the ASX trading platform on your behalf. Trading on the exchange can only occur through an ASX participant broker. So your app is a front door to your broker, not to the market itself. You never connect to the exchange directly. The Reserve Bank of Australia, in a 2001 bulletin on electronic trading, describes the exchange's side of this. Price discovery and trade execution, which the ASX conducts, are automated. Orders can reach a broker in different ways, including by phone, and the exchange's automated system handles the rest. That article is old. It describes a market that moved to electronic trading from 1987, with the trading floor closing in October 1990. But the core idea, that a computer matches orders, still describes how the ASX works. Before your order reaches any market, your broker runs its own checks, such as whether you have the money and whether the price looks sensible. Brokers also have a best-execution obligation, and the ASX is not the only venue: Cboe Australia runs a competing market, so your order may be routed there instead. Once your order reaches the exchange, it meets the central limit order book. This is a live, ranked list kept separately for each security. On one side are buyers, each stating the most they'll pay. On the other are sellers, each stating the least they'll accept. The ASX describes continuous matching in what it calls price/time priority. The best price goes first, and if two orders have the same price, the one that arrived earlier goes first. A study of the ASX, published through ScienceDirect, adds a useful detail. Orders that haven't been executed sit in this book, which is updated in real time and visible to the public, except for the identities of the participants. So the queue is open for anyone to see, but the names are hidden. The ASX states that all orders must have a price, with two exceptions: orders at market and orders at best. We'll come to those. One more structural detail. Prices on the ASX move in fixed steps called ticks. Below ten cents, the step is a tenth of a cent. From ten cents to two dollars, it's half a cent. Above two dollars, it's one cent. So an order at seventeen dollars eighty and a half cents is simply invalid, because no such price exists on the ladder. Let me put the first stretch together. Your tap is a request. It goes to a licensed broker, who enters it onto the exchange's electronic platform. There it joins a ranked book of other people's orders, and it can only become a trade if it finds a matching order on the other side. Nothing has been bought until that match happens. Now to the idea that trips people up most: the price. On an app, a share price looks like a single number. In the order book, there are two. The first is the bid, the highest price any buyer in the book is currently willing to pay. The second is the ask, the lowest price any seller is currently willing to accept. They are never the same number at the same moment, because if a buyer's price met a seller's price, those two orders would simply match and disappear from the book. What remains are the leftovers: buyers who want a lower price than sellers will give. The gap between the best bid and the best ask is the spread. The ASX study defines it as the difference between the best buy and sell quote. A survey of spread research in a Wiley journal calls it a key measure of market liquidity and transaction cost, influenced by liquidity and volatility. In plain terms, a narrow spread usually signals a busy, easily traded stock, and a wide one signals a stock where buyers and sellers are further apart. This matters to you directly. If you want to buy right now, you must accept the seller's price, the ask. If you wanted to sell right now, you'd accept the buyer's price, the bid. Someone who buys and immediately sells would lose roughly the spread. The ASX study puts it directly: the minimum cost of a market order is the bid–ask spread. That cost doesn't appear as a line on a statement. It's built into the price you get. So "the market price" is shorthand. There's a price you can buy at and a lower price you can sell at, and the headline figure on a screen is often just a recent trade or a midpoint. To recap: the price is two prices, and a market order pays the gap between them, which is the cost of trading immediately. That brings us to the choice you're asked to make when you place the order: market or limit. A market order says, buy me these shares at the next available price. According to Moneysmart, the Australian government's money guidance site, market orders usually go through quickly. The price you pay is whatever the book offers. If you're buying a modest number of shares and there's plenty available at the ask, you'll pay about the ask. If your order is larger than what's sitting at the best price, it works its way through the book, taking the next price up, and the next. The research describes orders as walking up or down the book, subject to their price limits. A limit order sets a maximum price you'll pay. Moneysmart explains that it only fills if the market reaches your price. If you place a buy limit below the current ask, you sit in the queue as a bid, and you wait. You might get a better price. You might also never get filled, because the market may move away from you. This is the central trade-off, and the ASX study frames it carefully. The market order gives immediate and guaranteed execution but an uncertain price. The limit order gives price control but risks not being executed at all. The researchers describe the choice as weighing price improvement against the probability of execution, with a further risk they call the winner's curse. That is the worry that your limit order gets filled precisely because the market is moving against you, so being filled is itself bad news. The study also looked at what drives people's choices. It identified four main determinants: the spread, the depth of orders at the best price, price changes in the previous five minutes, and imbalance between buy and sell orders. Wide spreads push people toward limit orders, which makes sense, since paying a wide spread is expensive. Now the first of two numbers worth holding on to. In that study's sample, 63 percent of orders were market orders. Put another way, a bit under two in three traders took speed and certainty over price control. But treat this carefully. The sample used 1997 data, so it describes an older market, and it tells us about that dataset, not about how people trade today. Here is a qualifier on the whole spread story. The ASX also operates a dark market, Centre Point, described as Australia's largest dark market, alongside its visible books. Dark means orders aren't displayed before they trade. The ASX describes it as designed to deliver price improvement. So the picture of a single visible book is a simplification. Some trading happens out of sight, which complicates the idea that the bid and ask you can see are the whole story. What about market makers, firms that continuously quote prices to keep trading smooth? For ordinary ASX shares, they play a smaller role than many people assume. The ASX study describes the market as relying almost entirely on investors' own limit orders for liquidity. Formal market makers matter more for exchange-traded funds and options, where someone is required to keep quoting a bid and an ask. For most shares, whoever is on the other side of your trade is simply another investor, or a trading firm, whose order was already waiting in the book. One cost sits outside all of this. Moneysmart notes that online brokers often charge a flat fee of around twenty dollars or less for smaller trades. That brokerage fee is separate from, and on top of, the spread. So a purchase can carry two costs: the visible fee and the built-in gap. To recap the choice: market orders buy certainty of getting the shares, and limit orders buy control of the price. You can rarely have both. Now the trade has matched. The ASX says you receive a confirmation that your trade has occurred. But the trade is matched, not finished. This is the stage most people don't see. The ASX states that when you buy, you need to pay within two days of your broker executing the order. That's T+2: the trade date plus two days. Moneysmart describes the sale side similarly, with proceeds arriving two business days after the trade day, and a holding statement that may confirm your registration as owner. So the match happens in moments, but money and shares change hands about two business days later. That is the second number to keep: executed instantly, settled two days later. There's a tension worth naming. The ASX frames T+2 as your payment deadline. Moneysmart notes that many brokers require money in your account before you place a trade, with only some letting you settle from a linked bank account within two business days. So your own broker's rules may demand cash sooner than the formal deadline. So what happens in those two days? Once the trade matches, the clearing house, ASX Clear, steps in as the central counterparty. It becomes the buyer to every seller and the seller to every buyer, so if the person on the other side fails to pay or deliver, you are not left exposed. Then, on settlement day, the ASX's settlement system, called CHESS, swaps the money and the shares at the same moment, so neither side hands over its half without receiving the other. Your ownership is recorded on the company's register, and the holding statement is your proof. So, the full sequence. Your tap sends a request to a broker, who enters it onto the exchange's platform. There it meets a public, ranked book of orders, matched by price and then by time. The price you see is two prices, and a market order pays the gap between them, while a limit order trades certainty for control. The match takes moments, but payment and ownership follow about two business days later. So the answer to the question we started with is clear. After you press buy, your request is matched in a public order book at one of two prices, and the paperwork and money catch up days later.