Where Does My Order Get Filled? A U.S. Stock Market Overview

Where Does My Order Get Filled? A U.S. Stock Market Overview

Editor’s note: This is part 2 of a 4-part series explaining domestic and international stock markets. Part 1 introduced the series. Future installments will look at the markets in Asia and Europe

Once upon a time, the world’s financial markets consisted of small, regional exchanges whose hours depended on the whims of local merchants. And getting cross-border price information in any semblance of real time was next to impossible.

Today, thanks to technology, you can follow financial markets around the globe as you follow the path of the sun. However, there is one market that dwarfs all others by far in terms of both market capitalization and average trading volume: the U.S. financial market. According to data from Credit Suisse Global Investment, as of December 31, 2016, the U.S. makes up 53.2% of the world stock market.

The U.S. market is not a monolith, though. So when you place an order to buy or sell a stock, index, ETF, or options order, depending on the product and prevailing price, your order might get filled at any number of places, including exchanges and order-crossing networks. Here are some of the platforms that make up the trade execution ecosystem.

New York Stock Exchange. The NYSE is the world’s largest stock exchange—based on the market capitalization of listed stocks, which as of May 2017 stood at $21.1 trillion. The NYSE uses market makers and specialists to facilitate trading by publicly quoting buy and sell prices during regular trading hours. (Specialists fill their own orders; market makers fill orders for themselves and for the public.) Since 2013, the NYSE has operated as a subsidiary of the Intercontinental Exchange Group (ICE).

NASDAQ Stock Market. Originally called the “National Association of Securities Dealers Automated Quotations,” the NASDAQ was the world’s first fully electronic stock exchange, meaning there were no floor traders (as on the NYSE) and all trades were executed “over the counter.” The NASDAQ is the world’s second largest stock exchange and uses only market makers to facilitate trading. Both the NYSE and NASDAQ have regular trading hours, from 9:30 a.m. to 4:00 p.m. ET.

Dark Pools. The name may sound ominous, but dark pools are simply private exchanges for trading securities. They’re only “dark” because these exchanges aren’t accessible to the public, so there’s no transparency about the transactions. Dark pools were designed to accommodate block trades—generally considered to be 10,000 or more shares of stock—by large institutions who didn’t want the size of their trades to negatively affect their execution price.

Internalizers. These are very large entities with their own inventory of shares to pull from for trading with clients. An internalizer may be anything from a large market-making firm to an investment bank to a hedge fund. If a client wants to buy 50,000 shares, these entities can “internalize” the trade from inventory instead of going to the public market to get the shares for the client. 

Equity Options Markets. In 1973 the Chicago Board of Trade, then the largest global futures market (and now part of derivatives conglomerate CME Group), founded the Chicago Board Options Exchange (CBOE), which ushered in a new era of listed options—puts and calls—on U.S. stocks. Now CBOE Holdings is the largest of several U.S. options exchanges. It also owns BATS, an all-electronic stock and options exchange, and the CBOE Futures Exchange, which lists volatility contracts including the flagship CBOE Volatility Index (VIX). Rival exchanges include those owned and operated by NASDAQ and NYSE.

Stock Index Futures and Options. Stock index derivatives are also listed on U.S. futures exchanges, led by the CME Group, which owns the Chicago Mercantile Exchange, Chicago Board of Trade, NYMEX, and COMEX. Listed products include futures and options on the S&P 500, NASDAQ 100, Dow Jones Industrial Average, and more.

These equity markets are just a part of what makes the U.S. the largest financial marketplace in the world. In future articles, we’ll take a look at some of the other major players across the globe.

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